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  Date : 18-09-2015   Platform/Online Media: Business World : Your Story Source

Managing companies’ Payable & Receivables on Business World

"As one to view the strife of elephants who takes his stand, On hill he's climbed, is he who works with money in his hand" - Thiruvalluvar.The above are words of greatest wisdom. In any task, positioning occupies chief importance. When we apply the same logic, successful companies followed the simple theory i.e., ensure cash flow.

How a person positioned himself atop a hillock watches an elephants fight with no worries inside, in the same way companies that rest on good cash balances carry on their business with absolute comfort. Let us think through, in the following paragraphs, how a business can plan its funds management for optimal output.

Receivables: We often come across good business houses with fat profit and loss account having gone through tailspin. Is not the irony conspicuous? If we had a microscopic view, the reason shall become obvious; 'poor cash management'. It is not without reasons that our management guru shave asserted, "Cash is king". Future will never be a 'present' if in present we don't realize that the realization (of receivables) is the key to success.

There are 8 basic principles I would like to lay down for effective receivable management:

1. Rupee 1 in hand is worth rupee 2 yet to receive!

2. If a reasonable discount needs to be offered to get collection now, never mind, please do. Booking discount is always better than accounting for bad debts

3. Don't chase the customers through collection agents unless you are willing to sacrifice the relationship

4. Have a clear credit policy and make it public in your portal that both the sales force of your company and the customer are well aware of that so early payers get motivated to pay it in advance.

5. Though the clauses of the sale agreements have to clearly mention the penal implications, I would not recommend the strict enforcement of the same as the legal route generally takes a longer time and takes away the productive time of the company

6. Always look at the risk rating of the customer.

7. Ensure that your sales & marketing, finance and relevant stakeholders teams are apprised of the health/behavior of the customers

8. Move out from cheque collections and move on to electronic mode


It is the other side of the same coin. As we expect our customers to pay our dues on time it is equally our responsibility to settle the creditors as agreed in purchase terms. Vendors are the first pillar of any business to thrive on. Following detail the effective payable management system

1. You can use the full credit period but don't go beyond it as relationship with the vendor matters. If negative signals are sent to the market by delaying the payments, it shall spread and impact the supply

2. Move onto online banking as it saves a lot of time in by pruning process time

3. Be proactive in informing the suppliers in case of delay in payments. Also, it is advisable to pay along with interest, if the agreement stipulates the same, which would generate immense amount of goodwill

4. If discounts can be had on early payment it is always advisable to avail that

5. Have strict controls on Vendor Master updates and verify the vendor details viz., name, bank account no., IFSC code etc., at regular intervals that the payments reach the intended recipient. I have come across in one of my earlier assignments where the person who used to process the payments, mapped his relatives bank details against one of the vendors. This surfaced only when the vendor brought this to the notice of the company after 2 years. Incidentally, the vendor happened to be a body of a government department.

6. Hedge foreign currency exposure, so the fluctuations in currency don't impact the finance positions

7. If it is a large organization, consolidation and centralization shall prove to of great fillip in terms of the overall picture and effective management

8. Ensure to recover for the damages for any breach in performance as provided in the agreement. Running behind the vendors for recovery after full settlement shall not help either.


There is nothing exhaustive in any topic. Whatever I have written above are only high level guidelines which can further be broken down to granular levels. I have not dwelled on customer/vendor selection processes, PO management etc., as those are a separate topic altogether. This article is to outline on how to manage the funds once accrue. The crux of entire cash management is to ensure circulation of cash. In human organism blood needs to circulate; in a business organism, it is cash.

That said, the following become the basic tenets to retain association in a business viz., Relationship, Energy, Trust, Attitude, Integrity and Neutrality (RETAIN)and nothing can replace them.

Circumambulation ensures health; circulation results in wealth.