Martin\'s Big and Tall has reported the following days to collect for their A/R:
ID: 2426852 • Letter: M
Question
Martin's Big and Tall has reported the following days to collect for their A/R:
Year 2012 Year 2011 Year 2010
Days to Collect: 57 51 47
Required:
A. Management has asked you to create three ideas that will help the company improve their Average Days to Collect.
B. Now management has asked you to recommend the idea that you think is the best and please explain why you think it is the best (in your explanation consider the financial impact of each of your ideas).
Explanation / Answer
A.
1.Credit Policy and credit terms: It play an important role in the amount of time it takes to collect a customer's account. For example, if your credit terms provide your customers with 30 days to pay their bills, then you should expect that your average collection period will be somewhere around 30 days—maybe longer.
Your credit policy and credit terms can also be used to accelerate and improve your cash inflows. Your efforts to collect on your customers' accounts also have a direct impact on accelerating and improving your cash flow.
2.Contact the debtor collectors and collect money from bad debtors.
3.Timely Invoices:
Creditors should try to make it as easy as possible for their customers and clients to make payments. Some companies send out reminders during the week prior to a contractually due payment date. Others might provide simple electronic invoices or electronic payment functionality. Debtors are more likely to pay when the process is easy and lacks confusion.
4. Postal Delivery Service:
If you wait the post office to deliver payments to your door, it will cause lost of time may be three or more days.
You can reduce this time by using a postal box and giving your mail pick-up personnel a key to the box and authority to make deposits in your bank. You not only avoid office delivery, you save time by having the deposits made on the same trip as when the mail gets picked up
5.
Reducing Bank Processing Time:
Part of the time we lose on collections may be due to bank processing
If you make an arrangement with customer to make direct deposit with bank, Customers can able to transfer money to your bank directly from their accounts, thus reducing bank processing time. You can set up a bank account that allows for automated clearing house payments. i.e ACH
ACH transfers from your customers' accounts to yours account without incurring any expenses .
B.In my opinion Credit policy is best
Credit Policy and credit terms: It play an important role in the amount of time it takes to collect a customer's account.
For example, if your credit terms provide your customers with 45 days to pay their bills, then you should expect that your average collection period will be somewhere around 45 days—maybe longer.
Your credit policy and credit terms can also be used to accelerate and improve your cash inflows. Your efforts to collect on your customers' accounts also have a direct impact on accelerating and improving your cash flow.
Increase discount for prompt payment
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