Literature Review: Concepts Of Debtors And Cash Management

3) The interest resulting from the debt also will cost to the company even it is taxable. The interest is fixed base on the level of the debt even the company does not generate profit. This would need to be careful when take on the debt comparing to use its own capital. And the creditor may come to intervene on the business when the company has difficulty to service its debt.

d. Obtain and promptly deliver or tender to the buyer any document necessary to enable the buyer to obtain possession of the goods from the carrier.

As a result, holding cash would be essential component of the firm strategy. To develop new products, buy new equipment or expand geographically, firm has to spend money on marketing research, product design, prototype development and so on. Moreover, if a recession hits and the economy start to slow down,

* Where there is a sale of goods by description there is an implied condition that the goods will correspond with that description.

Creditors normally focus on the liquidity or solvency of the borrower in terms of current ratio and quick ratio, which indicate whether the company has enough working capital to cover the short-term debts. Myer will enter into a syndicated facility agreement to refinance the existing borrowings of the Myer Group. Besides, creditors are interested in the business risks the company might undertake, which indicate the possibility that the company might be unable to pay back the long-term liability in the future. From this point, the expectation on high return on investment and high profitability in the long run make the creditor’s interest aligned with shareholders’ value.

Creditors: These are the entities who lend money to an organisation(s) with the expectation that it will be repaid.

MCI senior officers were concerned with the increasing amount of bad debt due to the number of delinquent Accounts Receivables (AR). A reasonable course of action may have been to improve on the collection of AR. However, the officers were more concerned with their stock portfolios. The officers sought to improve the reputation MCI. The company was attracting a takeover bid that would increase the value of the company’s stock, consequently enriching their own self interests.

For those long overdue outstanding that are not eligible for any financial assistance, after ample time of calling up the financial contact of the clients, sending out statement of the accounts and reminder letters, if the financial contact still failed to make payment for the outstanding, the cases will be refer to the debt collection agency. The successful debt recovery rate is high resulting in reduces of bad debts.

(2) the buyer has paid or will pay the seller, and the obligation is not contingent upon resale of the product.

Moving onto the balance sheet, it is safe to assume that the cash position in the firm will increase the rate of the sales growth going forward. In actuality, cash has historically increased faster than the growth of revenue with 2004 being an exception. To calculate the assumption for accounts receivable, inventory, and accounts payable, we averaged the four years worth of data

To determine the proportion of allowable amount on a customer, the company checks the number of days the debt has been pending before payment. Equally, financial conditions of the customers, macroeconomic factors and the weighted-average risk trend trends are considered.

Due to high investment in fixed asset the firm also need a high amount of debt in order to cover its expenses so the smooth run of business.

The third ratio mirroring the company’s efficiency is the creditors’ days ratio, which measures, according to Atrill, the number of days in which the business pays its debts to suppliers. Britvic PLC’s financial statements recorded in 2009 a 20 days increase in the above mentioned ratio compared to the 2005-2008 average that had a value of 149 days. Therefore, Britvic PLC paid in 2009 its debts 169 days after the enclosure of the transactions. Taking into consideration the fact that Britvic PLC is operating in the soft drinks industry, which has a medium pace of generating cash, it may be stated that this ratio’s value is high enough to reflect that Britvic PLC is risking the creditors’ goodwill. On the other hand, the company paid its short-term liabilities in approximately four months after receiving the supplies

Furthermore, if an organisation does not have enough cash resources in order to settle its current liabilities, this will highlight great inefficiency with stock turnover not being sold. A good company such as Sainsbury’s we see is healthy because revenue is recognised from inventories sold – this revenue allows cash to flow in order to pay for short term and long-term liabilities. It is evident that there are insufficient cash flowing into the company from investing activities and financing activities, which are shown by the brackets.

The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.