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  • 1.  Managing A/R

    Posted 04-14-2015 08:09 AM
    This message has been cross posted to the following Discussions: CMA Study Group and Accounting Exchange for 'on-the-job Q&A' -NOTE please post 'CMA Q&A' in: "CMA Study Group" .
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    My company is facing problems collecting their Accounts receivables and asked me to build a plan that assist in boosting their collections, I referred to Wiley book and browsed the Managing Current Assets topic, I found that offering a trade discount on early payments would be helpful but I need to clarify about the equation of Effective annual rate of foregoing a trade discount for example a trade credit of 2/10 net 30 will result 36.73 % shall I divide this number by 12 to get the monthly cost so I can compare it with prime interest rate offered by banks 4.5 % and compare the 2 results?

     I also want to know if you have more researches about how to increase the collection of Accounts receivables and how I can get access to them since IMA book have limited information about this field.



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  • 2.  RE: Managing A/R

    Posted 04-15-2015 12:00 PM

    You compare the two by comparing the annualized rates - 36.3% vs. 4.5%.  Actual cost incurred is dependent on how many dollars actually take advantage of the early payment discount.

    For another approach, find a person that has gone through such a task and hire them as a consultant to show you how to get desired results with less lost revenue.

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    Brad Earle
    Consultant
    Greensboro NC
    United States
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  • 3.  RE: Managing A/R

    Posted 04-16-2015 11:45 AM
    A bank lock box network set up could decrease collection time by at least a day a month or more, depending on the mail service, for the mailed in payments. 12 days per year improvement. You will need to consider the lock box service fees in your analysis.

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    Terry Gelber CPA
    Accountant
    Higley AZ
    United States
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