Factors influencing size of receivable

Receivables represent the amounts owed to the company as a result of sales of goods and services in normal course of business. These are the claims of the firm against customers and form a part of current assets. Receivables are also termed as account receivables, customer receivables, trade receivables or book debts.





Size of credit sales

The volume of credit sale is the first factor that influences receivables. Firm adhering to cash sales would have low receivables when compared to firms allowing sales on credit.
Higher the credit allowed more will be the receivables and vice a versa

Credit Policies

Firm with conservative credit policies will have low receivables when compared with firms following liberal credit policies. The vigour with which the concern collects the receivables also affects the size of its receivables. Prompt collections even with liberal credit policies will help in keeping receivables under control. Outstanding for long period may result in bad debts.

Terms of trade

The period for which the credit is allowed will decide the extent of receivables. Longer the period of credit more would be the receivables. Again, cash purchases followed up with credit sale is the main reason for increasing receivables.

Expansion plans
Concerns that want to expand has to enter new markets. To attract customers it becomes necessary for the enterprise to provide incentives in terms of credit. Once the concern gets the permanent customers it may start reducing the period for which credit was allowed.


Credit collection efforts
A concern should always have strong and well equipped credit collection machinery.
Periodical reminders should be sent to customers in order to reduce the size of outstanding. Delayed collection will increase receivables and will impose serious financial troubles for the company.