A study on

The Analysis of Credit Management techniques adopted by 3M and its

impact on Cash Movements
At

Submitted to
BANGALORE UNIVERSITY
In Partial Fulfillment for the award of
The Master of Business Administration Degree
By:
TAYABA SHIREEN. A
Reg. No: 03ACCM6056
AL-AMEEN INSTITUTE OF MANAGEMENT STUDIES
(Affiliated to Bangalore University, Bangalore 560027)

CONTENTS

CHAPTER- 1

INTRODUCTION
Accounts receivables policy formulation
Credit Policy
Credit Analysis
Credit Costs

CHAPTER- 2

RESEARCH DESIGN
Statement of problem
Title of the Project
Objectives of the Study
Research Methodology
Sources of Data
Tools for Data Collection
Scope of the study
Limitations

CHAPTER- 3

COMPANY PROFILE
History & Corporate Milestones
Strengths
The organization
Goals
Performance Initiative
Vision

CHAPTER- 4

ANALYSIS & INTERPRETATION

Techniques of Payment & Collection
Credit Terms
Credit Policy
Control of Accounts Receivables

CHAPTER- 5

FINDINGS

CHAPTER- 6

SUGGESTIONS

CHAPTER- 7

BIBLIOGRAPHY

ANNEXURES

INTRODUCTION TO RECEIVABLES
MANAGEMENT

An accounts receivable is generated when an enterprise, having

granted credit, accepts, in lieu of cash, a written or implied promise to pay in
the future for delivery of its goods or services. In todays business
environment, competitive pressures, customer preferences and promotional
selling leads the management of most enterprises to offer credit.
Accounts receivables often constitute a significant portion of assets.
Controlling the accounts receivables process demands the development of
policies that are compatible with an enterprises profits, liquidity and market
share. Since the accounts receivables policy has a broad impact, it must be
managed carefully and assessed frequently.
Accounts receivables policy development is subject to internal and
external business constraints and requires careful evaluation of the policies
potential impact on sales volume, cash management objectives and
procedures, direct and indirect cost of receivables management and customer
relations.

Once an account receivables policy is implemented, it should be

reassessed at least annually, since policy changes could be required to adjust
for changing internal and external conditions, such as changing business
objectives, varying competitive industry standards, fluctuating interest and
foreign exchange rates, inflation, rapidly increasing credit volume,
technological advances and globe trade pattern trends.
Receivable is a permanent investment and is an ever-rolling account.
The finance manager has to determine the level of this account suitable so
that there will be an easy flow of working capital. The management should
see that debtors turn fast. If the debtors turnover velocity is high then the
firm can minimize borrowings for working capital. Accounts receivable
management is a decision making process, which takes into account the
creation of debtors, and minimizing the cost of borrowings of working
capital due to locking of funds in account receivables.
Impact of receivables management on business
Financial Impact:
Improved return on receivables.
Increased cash flow.
Generates investment opportunities.
Increase collection of effectiveness.
Reduce receivable delinquencies.
Reduced operation costs.
Reduce administration costs.

 Early intervention turns marginal accounts into profitable

accounts.
Customized receivables service based on invoice amount.
Productivity gain.

Strategic Impact (Long Term)

Focus on core business.
Better use of internal revenue.
Best in class capabilities utilized.
Tactical Impact (Short Term)
Reducing/controlling operating cost.
Reallocation of capital funds.
Tapping into new resources.

Receivables management flow chart

CS
D
Order processing

Order confirmation
Billing and dispatch
Consolidation of sales data

Provision for
Bad debts

Credit
Controller

System update

Monthly schedule
Of receivables

Customer
Master

Required legal
Steps

Proceed to
Suspend

Receipt
ing

Follow up of outstanding
amounts

Payment
s

End of
the
day
Docu
ment
s

Subsequent
Dispatches

Payment
Defaulted
Collections

ACCOUNTS RECEIVABLES POLICY FORMULATION

The accounts receivable cycle begins with the enterprises decision to
extend credit and ends when settlement is received in payment for the goods
or services provided.
It is critical that accounts receivable credit, collection and financing
policies complement marketing, sales and production policies and, therefore,
be compatible with the enterprises overall objectives. To achieve this goal,
the chief executive officer should involve senior managers from all
appropriate departments in developing the accounts receivables policy, since
the various departments within an enterprise could have vested anterests and,
possibly, conflicting objectives; assign one senior manager to be responsible
for the groups policy determination; and review and approve the policies
that the group has formulated.
Specific level of accounts receivable responsibility and authority
should then be assigned throughout the enterprise. Designation by title is the
most efficient method of identifying levels of credit responsibility, with

senior managers usually assigned to approve higher credit risks. The policies
should be clearly communicated in writing to planning, production, credit
and sales staff (and any other staff affected by the policies) to ensure
effective accounts receivable management and credible, consistent customer
contacts.

CREDIT POLICY
An enterprises credit policy is a major, controllable element that has a
significant influence on sales demand and profits. The many factors that
comprise credit policy should be analyzed before the decision is made
whether or not to offer credit or to make changes to current policy. Foctors
that could constrain or influence credit policy include: ability to finance the
credit policy. Costs of financing receivables by means of internal or external
credit facilities should be estimated to determine which approach is feasible
for the enterprise.
The development of the enterprises credit policy requires that specific
decisions be made regarding several variables that establish the terms of sale
and the acceptable level of credit risk. The variables are:
Credit standards
Credit period
Credit terms

 Cash discount and surcharges

Credit limits
Credit instruments
Payment methods

When implementing or varying the credit policy by changing

any one, or all, of the above variables, management must assess the
impact on net income, calculate the probability of achieving the
planned results, and determine the additional level of risk assumed. In
particular, any relaxation of credit policy should be considered only
after very careful evaluation of the impact of the change by top
management, because it is extremely difficult to revert to more
stringent policies without experiencing adverse effects on customer
relations and sales.
`Credit Standards
A firm has a wide range of choice in choosing the credit
standards. A firm has to decide what standard should be applied in accepting
or rejecting an account for credit granting. At one end of the spectrum it may
decide not to extend credit to any customer, however strong his credit rating
may be. At other end it may decide to grant credit to all customers
irrespective of their credit rating. Between these two extreme positions lie

several possibilities, often the more practical ones. This gives ample scope
for the Credit manager/ Finance manager to play a critical role.
In general liberal credit standards tend to push sales up by attracting
more customers. This is, however accompanied by a higher incidence of bad
debt loss, a large investment in receivables and a higher cost of collection.
Stiff credit standards have the opposite effect. They tend to depress sales,
reduce the incidence of bad debt losses, decrease the investment in
receivables and lower the collection cost.

Credit Period
The credit period is the length of time credit is granted (for example,
from invoice date to due date), and is normally established according to an
industry standard. The credit period has direct impact on the cost of
financing receivables and on collection risk. An enterprise may elect to
deviate from the industry standards for one or more reasons: to obtain a
competitive advantage, to reflect the enterprises classification of customer
quality, or to longer-term economic or business changes.
The date when payment is deemed to be received should be defined. It
may be based on the envelope postmark date, the remittance processing date,
or the date funds are received. Customers should be clearly advised of the
payment receipt date.
Credit Terms

Credit terms are normally specified on the contractual documents, or

on the customer invoice or statement. Frequently used payment terms
include the following: cash before delivery (CBD) or Cash on delivery
(COD) may be required when the buyer has been classified as a poor credit
risk. In case of an unknown or one-time buyer, credit cheque may be
required when the order is placed, or before the goods or services are
delivered.

Cash terms permit the buyer a payment period of about 5 to 10 days

and maybe used for high turnover or perishable goods.
Invoice terms often a net due date and a discount due date that maybe
calculated from various starting dates such as the invoice, delivery or client
acceptance dates. The term maybe quoted, for example, as 2/10, net 30
meaning a payment discount of 2% is given if the invoice is paid within 10
days. Full payment is required after 10 days but within 30 days.
Periodic statements are normally issued monthly. The statement terms
may be similar to invoice terms and include discounts and interest charges
for late payment. All invoice transactions are listed up to a cut-off date and
payment is due by a specified date in the following period.
Credit discounts and surcharges

Cash discount policies may be established for a number of reasons: to

conform to the industry norm, to stimulate sales, or to expedite receipt of
cash. To be an effective collection tool, the discount rate must be established
at a rate of interest higher than that at which the customer is able to borrow.
Consideration should be given to the implications of customers taking a
discount to which they are not entitled.

A surcharge, or late payment charge, can be used to encourage prompt

payment and to equalize treatment for customers who pay on time versus
those who delay payment.
Credit Limit
Credit limit categories should be established to codify the total credit
that may be granted to customers in each credit quality classification. To
ensure that credit limits remain appropriate, given business or other major
changes, they should be regularly reviewed. Periodic credit worthiness
reassessment can be simplified by automatically reassigning customers to a
higher credit limit level after a specified period of satisfactory payment
experience.
Credit factors, assigned by the credit grantor and weighted by relative
importance, can be used to calculate a single numerical value that could be
used to assign distinctive credit limits and payment periods to different
customers. The credit score must always be tempered by informed

management judgment because the accept-reject decision implicitly includes

economic trade-offs: to minimize rejection of an acceptable credit customer
(with loss of future business) versus to accept a poor credit risk (and
resulting debt losses).
Credit Instruments
Credit instruments are written payment contracts agreed to by the
enterprise and its customers. Instruments range from simple invoices to
formal credit arrangements that are selected to reduce credit risk. When
selecting an instrument to be used, the enterprise should consider industry
standards, market norms and buyer risks.
The enterprise may choose different instruments at different times
depending on the product or services sold, the customers geographical
location, or customer quality classification. The ability to use different
instruments provides flexibility when dealing with significant or sensitive
customers and orders. Compliance with relevant consumer protection
legislation may require detailed disclosure to the buyer of credit instrument
terms.
The following are the 4 major credit instrument:
1. Open Account
2. Promissory notes
3. Conditional sales contracts
4. documentary credits

Payment Methods
The management of the enterprise selling the goods or services should
advice its customers of acceptable payment methods, including advance
payments, cash, cheque, credit card or electronic fund transfer. The
implications associated with each method should be assessed carefully
before determining which payment vehicles to allow. For example,
electronic funds transfer (EFT) speeds cash flow and reduces collection risk
because funds are immediately withdrawn from the customers account and
credited to the seller account. However, there are initial development and
on-going operational costs, and some enterprises may not find this process
cost effective.
Factors to consider when determining possible payment methods are:
provisions of the Federal Currency Act concerning legal tender; standard
trade practices; cost of processing; cash flow implications and impact on
collection risk.
Currency hedging may be a major factor for industries involved in
foreign transactions, and the policy related to hedging should be in writing.
CREDIT ANALYSIS
Besides establishing credit standards, a firm should develop procedures
for valuating credit applicants. The second aspect of credit policies of the

firm is credit analysis and investigation. Two basic steps are involved in the
credit investigation process.
a) Obtaining credit information.
b) Analysis of credit information.
It is on the basis of credit analysis that the decisions to grant credit to a
customer as well as the quantum of credit would be taken

Obtaining credit information

The first step in credit analysis is obtaining credit information on
which to base the evolution of the customer the sources of information,
broadly speaking are:
Internal
External
Internal
Usually firms require their customer to fill various forms and
documents giving the details of the financial operations. They are also
required to furnish trade references with which firms can have contacts to
judge the suitability of the customer for credit. This type of information is
obtained from internal sources of credit information another internal sources

of credit information is derived from the records of the firms contemplating

an extension of credit facility . it is likely that a particular customer or
applicant may have enjoyed credit facility in the past in the case that firm
would have information on the behavior of the applicants in terms of the
historical payment pattern this type of information may not be adequate and
may therefore have to be supplemented by information from other sources.
External
The availability of the information from the external sources to assess
the credit worthiness of the customers depends on the development of the
institutional facilities and industry practices. in India, the external sources of
credit information have not as developed as in the industrially advanced
countries of the world. Depending upon the availability of the following
external sources may be employed to collect the information.
Financial Statements
The external sources of credit information is the published financial
statement that is the balance sheet and the profit and loss account. The
financial statement contains very useful information they throw light on an
applicants financial viability, liquidity profitability and debt capacity.
Although the financial statement do not directly reveal the past payment
period of the applicant they are very helpful in assessing the overall financial
position of a firm which is significantly determines its credit standings.
Bank References

Another useful source of credit information are the banks of the firm,
which is contemplating the extension of credit the modus operadi here, is
that the firms banker collects the necessary information from the applicants
bank. Alternatively, the applicant may be required to ask his banker to
provide necessary information either directly to the firm or to its bank.

Trade References
These refer to the collection of information from firms with whom the
applicant has dealings and who on their experience would vouch for the
applicant.
Credit Bureau Reports
Finally, specialists credit bureau from organizations specializing in
supplying credit information can also be utilized.
Analysis of Credit Information
Once the information has been collected from different sources, it
should be analysed to determine the credit worthiness of the applicant.

Although there are no established procedures to analyse the information, the

firm should device one to suit its needs. The analysis should cover two
aspects:
a) Quantitative
b) Qualitative
Quantitative
The assessment of the quantitative aspect is based on the factual
information available from the financial statements, the past records of the
firm, and so on. The first step involved in this type of assessment is to
prepare an ageing schedule of the accounts payable of the applicant as well
as calculate the average age of the accounts payable. This exercise will give
an insight into the past payment pattern of the customer. Another step in
analyzing the credit information is through a ratio analysis of the liquidity,
profitability and debt capacity of the applicant. These ratios should be
compared with the industry average; moreover, rend analysis over a period
of time would reveal the financial strength of the customer.
Qualitative
The

qualitative

assessment

should

be

supplemented

by

qualitative/subjective interpretation of the applicant credit worthiness. The

subjective judgment would cover aspects relating to the quality of
management. Here, the reference from other suppliers, bank references and
specialist bureau reports would form the basis for the conclusions to be
drawn. In the ultimate analysis, therefore, the decision whether to extend

credit to the applicant and what amount to extend will depend upon the
subjective interpretation of this credit standing.

COSTS
The major categories of costs associated with the extension of credit
on accounts receivable are:
1) Collection cost
2) Capital cost
3) Delinquency cost
4) Default cost
Collection Cost
Collection costs are administrative costs incurred in collecting the
receivables from the customers to whom credit sales have been made.
Included in the category of costs are (i) additional expenses on the creation
and maintenance of a credit department with staff, accounting records,
stationary, postage and other related items; (ii) expenses involved in
acquiring credit information either through outside specialist agencies or by
the staff of the firm itself. These expenses would not be incurred if they do
not sell on credit.
Capital Cost

The increased level of accounts receivable is an investment in assets,

they have to be financed thereby involving a cost. There is a time lag
between the sale of goods to, and payment by, the customers. Meanwhile,
the firm has to pay employees and suppliers of raw materials, thereby
implying that the firm should arrange for additional capital to support credit
sales, which alternatively could be profitability employed elsewhere, is,
therefore, a part of the cost of extending credit or receivables.
Delinquency cost
This cost arises out of the failure of the customers to meet their
obligations when payment on credit sales becomes due after the expiry of
the credit period. Such costs are called delinquency cost. The important
components of this cast are:
1) Blocking up of funds for an extended period.
2) Cost associated with steps that have to be initiated to collect the over
dues, such as, reminders and other collection efforts, legal charges,
where necessary, and so on.
Default Cost
Finally, the firm may not be able to recover the over dues because of
the inability of the customers. Such debts are treated as bad debts and have
to be written off as they can not be realized, such casts are known as default
casts associate with credit sales and accounts receivable.

RESEARCH METHODOLOGY
STATEMENT OF PROBLEM
To keep up with the competition prevailing in the industry, every
company is extending credit to its customers. This not only is being as a
marketing strategy but it also helps in improving sales.
The problem that arises is the assessment of the management of credit
granted to customers and keeping a track of over-dues and ensuring prompt
payment.
Management of receivables is one area, which attracts the immediate
attention when we speak about cost, efficiency, profitability and controlled

inflow and outflow of the cash and funds. It is here we can minimize the
costs, bad debts, interest on these receivables, managing creditors and
ultimately managing liquidity i.e., cash. It is evident from above, the need to
be strong in managing the receivables and thus the study of receivables
management arises and is of great importance to the organization dealing in
small or large business.

OBJECTIVES OF THE STUDY

To study the receivables and trend of managing the receivables.
To determine the effectiveness of management of receivables.
To determine the amount of receivables due.
To know the optimum credit period.
To study in detail the practical approach followed in granting various
types of advances.
To study the recovery pattern of receivables.
To know the cash and fund management.
RESEARCH DESIGN OF THE STUDY

The study is mainly based on the data provided in the Ageing files of the
company and its balance sheet for the year 2003-04. The other data required
for the study was directly collected from the concerned executives.
SOURCES OF DATA
Primary data:
Discussions held with the concerned financial personnel and other related
departments.

Secondary data:
The secondary data is collected from various academic books and journals
pertaining to financial aspect.
TOOLS FOR DATA COLLECTION
As the subject under study is mainly the financial aspect of the company, the
main sources of information are taken from internal sources of the company.
1. Balance Sheet/ Profit and Loss Statements.
2. Ageing files of the customers.
3. Cash flow Statements.
4. Formal and informal discussions with the concerned department
personnels.

SCOPE OF THE STUDY

The scope and significance of the study are as follows:
The study was carried out at 3M India Limited, Bangalore.
The study is confined to analyzing the components of Receivables
Management.
The findings and suggestions from this study will help the
organization to frame a suitable financial strategy for the better
operation of the organization.

LIMITATIONS
The study is limited up to 10 major customers to whom credit was
extended.
The study is based on the data collected for only 2 years.
The study included collection of data through interaction with
officials and the findings were based on the premise that the
respondents have given correct information.

CORPORATE PROFILE
In 1902, a group of professional businessmen found the company 3M
(Minnesota, Mining and Manufacturing) with the purpose to mine a natural
abrasive called corundum from a local mountain, aiming to manufacture
grindstones. The mineral turned out to be worthless and they started to
manufacture sandpaper. Thus, began a stage of growth, which was to
culminate to being one of the largest and most innovative companys
history.

With the growth of the company, it produces more than 50 thousand

product in 62 different countries, having 160 manufacturing locations.3M
laboratories around the world employ over 8000 people. Having the net
income of $ 2 billion and 12.1% of sales.
But 3M recognize that it is the people and not the pound or dollar that
gets result in the research field. So every researcher is allowed 15% of his
working time to work along lines that interest him personally, indeed,
innovation is the buzzword at 3M with 500 new product introductions every
year.
3M company, head quartered in St. Paul USA is a multi-product,
multi-technology, multi-market, transnational company encompassing
amazing diversity. 3M is a highly diversified fortune 500 company with a
significant global presence. The strong 3M team of more than 70000
employees is spread over 60 countries with core values of innovation and
technology driven is what propels this huge global force forward.
3M is US $ 25 billion global giant which manufactures over 50000
innovative products, established itself as one of the most admired
companies.
The perfect match between Indias multifaceted customer profile and
3Ms diverse range of products offering proven customers benefits led to
BIRLA 3M being born in 1987.

One of the main plans of 3Ms business philosophy has been to grow
through improving and expanding its own technology base creating products
that fulfil specific customer needs. With a promise of delivering innovative
quality products and services that makes the customers life easier and better,
3M today has an array of useful products targeting each and every segment
of the market. 3M has made an unswerving commitment to innovation at
every function in the company and has believed in undertaking a strong
responsibility to the community at large and the environment in which it
operates.

3M HISTORY AND CORPORATE MILESTONES

1902

Founded in the town of two harbours, Minnesota as

Minnesota,
Mining and Manufacturing Company.

1910

Company moves to St. Paul.

1916

First dividend paid i.e. quarterly.

1920

Worlds first waterproof sand paper was introduced.

1925

3M diversifies with invention of Masking Tape and first

Scotch Adhesive Tapes.

1930s

Golden age of 3Ms Research programmes (Cellophane

tape /
Transparent tape)

1940s

Product for world war two New products like Scotchlite

Reflective Sheeting for advertising, highway marking,
Magnetic Tape, Offset Printing Plates etc. Introduction of
Thermo fax copying process, Scotch guard fabrics
protection videotapes, Scotchbrite cleaning pads etc.

1960s

International Operation Commenced.

Introduction to Dry Silver Microfilm, Photographic Products,
Decorative Laminates, Carbonless

1970s

Over Head Projectors, Medical and Dental products were

launched.

1980s

Growth

of

Pharma,

Agrochemicals,

Digital

Sound

Recordings, Energy Control Films, Post-its and X-ray Films

were launched
1987

Jun

3M and Birlas become Partners

1988

Nov Foundation laid for Manufacturing Facility at Electronics

City, Bangalore

1990

1991

Feb

Inauguration of Customer Tech Centre, Bangalore, by Allen

Apr
Jun
Jul
Sep
Oct

F. Jacobson, CEO, 3M, St.Paul

Production of UY connectors
First Shipment of MS2 Connectors
Commencement of Scotch-Brite Conversion
First Shipment of first Automotive Stripings
Installation of Tape Coater

Jan

Production of Box Sealing Tape Manufacturing of first

batch of Light Water

1992

Oct

First Shareholder's Meeting

1993

Jul

Self-Certification Approval for Telecom Connectors.

3M

increases

equity

holding

to

51%.

Warehousing Operation at Delhi.

Nov Warehousing Operations at Mumbai
1994

Jan
Apr
Dec

Opening of Chennai Customer Sales Centre

Opening of Calcutta Customer Sales Centre
Opening of Bangalore Customer Sales Centre

1995

Feb AS-400 Installed- E-mail and IFS2 Implemented

Apr ISO-9002 Certification
Nov New Warehouse, Bangalore

1996

Feb

Inauguration

of

Graphics

Production

Centre.

New Warehouse, Mumbai

Mar Printed Post-it Notes
Dec Opening of Second Customer Sales Centre in Bangalore
1997

Jan Industrial land acquisition at Ranjangoon, Pune

May Mumbai Customer Sales Centre Expansion
Jul Chennai Warehouse

1998

Jan
Apr
Jul

Expansion of Bangalore Customer Sales Center-1

3M Increases equity holding to 76%
Opening of new Delhi Customer Sales Centre with

expanded facilities
Aug Inauguration of Innovation Center, Electronics City,
Bangalore
2000
2002

Jun
Jul
Dec

Acquisition of Auto Striping India Pvt. Ltd.

Inauguration of Centralized Corporate Office
Company name changed to 3M India Limited from Birla
3M Limited.

3M INDIA STRENGTHS

With the vision of being the most innovative enterprise and the
preferred supplier 3M India uses its core strengths of technology,
products, people and values to solve customer problem. 3Ms
immense strength lies in its 30 technology platforms some of which
are adhesives, specialty chemicals, micro replication and optics. These

platforms have launched several of 3Ms product lines. The resulting

products are often so unique, that they redefine the very parameters of
competition.

Since its inception in 1988, the company has listened to customer

needs in India and have customized and modified products to meet
special local needs.

That 3M is one of the worlds most innovative corporations worldwide

is reiterated by the fact that 30% of the annual sales come from products
that are less than four years old. But, innovation as 3M sees it, is in more
than just our products. Its in the way we do business and provide
solutions with simplicity and ingenuity.

The products from the 3M portfolio are the result of combining

3Ms core strengths of innovation and customer satisfaction thereby
providing investors an attractive return through sustained quality
growth. Headquartered in Bangalore the company has a seven acre
manufacturing facility at Electronics city where around 40 products
are manufactured. These include connector and splicing systems for
telecommunication cables, automotive graphics, a range of pressure
sensitive adhesives (PSA) tapes and some consumer products.

At 3M India, the philosophy is believing that everything begins

and ends with the customer. This has been one of the key drivers in
providing the best products and services in a timely and efficient
manner.

To achieve its goal of global excellence, 3M has adopted a

continuous improvement process in the Supply Chain Excellence,
Pacing Plus Program and Earning Customer Loyalty initiatives. With
this approach 3M India goes beyond the current quality programmes
or awards and re-emphasizes the importance of customers in all it's
operations. At the same time, it empowers each and every 3M
employee so that every one is personally involved in ensuring
uncompromising commitment to customer satisfaction

3M Indias greatest asset has been the corps of highly trained and
qualified staff. The strong commitment to people has enabled 3M
India today to attract and retain some of the best talents in the country.

3M INDIA THE ORGANIZATION

3M India is divided into 8 business groups that serve focused markets.
Markets Served by 3M India:
Industrial Markets
Automotive & Specialty Material Markets
Electro & Telecom Markets
Health Care Markets
Traffic & Safety Markets
Electronic Markets

 Construction Markets
Consumer & Office Markets

Industrial Markets
Tapes, adhesives and abrasives form the key products of the Industrial
Markets Group serving the Indian automotive, aerospace, construction,
electronics and transportation markets. Some of the well-known brands
within this group are Scotch Masking Tapes, Scotchbrite Surface
Conditioning Products and Wetordry Abrasive Papers. In addition, the
group also markets products for automotive repair and refinish, such as
3M Paint Finishing Products, 3M Abrasive Products and Accessories,
3M Adhesives, Coatings and Sealants. Cleaning and finishing materials
along with micro finishing abrasives also form part of the group's product
portfolio.

Scotch Packaging Tapes

Scotch Masking Tapes

Speciality Tapes and Films

Labelling Systems

Speciality Adhesives

3M Wet or dry Sheets

3M Imperial Hand Glaze

3M "4 Way" Spray

Scotch-Brite Surface Conditioning

Products-Pads, Wheels, Brushes,

Rolls 3M Roloc Discs

Automotive and Specialty Material Markets

As part of the Groups Speciality Materials Division, the
fluorochemical products marketed are used as liquid heat transfer media and
dielectric electronic testing fluids.
In addition the group also locally manufactures & markets automotive
graphics & decorative badging for two and four wheelers. Other products of
the group are protective films, attachment tapes for automotive application
and 3M Filtrete Filtration Products for particle and gas filtration in airconditioners, room air-cleaners and vacuum cleaners.

3MScotchcal Automotive Graphics

Double sided foam tape for automotive trim attachment.

Fluorinest & HFE Specialty Chemicals

Glass Bubbles & Ceramic Microspheres

Electro and Telecom Markets

This specific group has been creating products that meet the
specialized needs of the power and telecom industry in the country.
Connectors for joining of copper and optical fibre telecom cables, jointing

and termination kits for power cables and interconnect products for the
electrical industry are some of the specialised products in this group.

3M Scotchlok UY and MS2 Modular Connectors for splicing

underground copper cables

3M Fibrlok and 3M Multifibre Fibrlok Mechanicals Splices

for Optical Fibre Cables

Customised Fiber Management Systems, Fiber Optic Closures.

Test and measurement products for optical fibres such as OTDRs,

fibre identifiers and power meters Vinyl tapes, Polyester, Mastic
Tapes

Polyester film tape

Power termination and splicing kits

Health Care Markets

The Health Care Group is one of the key focus areas of 3M Indias
plans. This group has products ranging from medical surgical supplies,
medical equipment, dental care products and devices and film for the food
and pharmaceutical industry. Some of the well recognised products are
3M Transpore Plastic Surgical Tape, 3M Littmann Stethoscope,
3M Tegaderm Transparent Dressing, 3M Ioban Antimicrobial
Film, 3M Specialty Drapes, 3M Sterivac Gas Sterilizer and 3M
Refastenable Tapes for manufacturers of diapers. The 3M Micropore
Surgical Tape, which is the market leader worldwide for general dressing, is

part of this group's product portfolio. The Dental Division offers

restoratives, finishing and polishing products, adhesives, crowns, impression
materials, infections control products, and preventive sealants.

3M Micropore Surgical Tape

3M Transpore Surgical Tape

3M Tegaderm Transparent Dressing

3M Littmann Stethoscopes

3M Steri Drape Incise Drape

3M Ioban2 Antimicrobial Film

Autoclaves steam indicator tape

3M Indox Ethylene Oxide Gas Indicator Tape

3M Attest Biological Indicators

Refastenable tapes for disposable diapers

5XL & 8XL ETO Gas Sterilizers

3M Z100 Composite Dental Fillings

3M Single Bond Dental Adhesive

3M Express Impressioning System

3M Filtek Restorative System

Traffic and Safety Markets

This group concentrates on reflective sign materials, graphics,
respirators and many other products that enhance worker, public and product
safety around the world. Some of the products offered under this group are
Scotchlite Products, 3M Reflective Sheeting,

3M Dust/Mist

Respirators, chemical sorbents, environmental safety products, 3M

Panaflex Flexible Substrates and 3M Scotchcal Translucent Graphic

Marking Film.
Recent innovations include diamond-like reflective materials, largeformat digital printing, new anti-counterfeiting films for products and
documents, and brightness enhancement films for products that save battery
power and make computer screens easier to read.

3M Scotchlite Reflective Sheeting

3M Stamark Pavement Marking Polymer Tape

3M Scotchlite SOLAS Grade Reflective Material for Marine

Applications

3M Respirators

Personal environment systems

3M Powersorb Oil Sorbents

Thinsulate Thermal Insulation

3M Filtrate Air Filter Media

3M Ear Plugs

3M Liquid Filter Bags & Cartridges

3M Panaflex Flexible Substrate

3M Scotchcal Transluscent/Opaque Vinyls

Electronic Markets
This group in 3M India provides electronic packaging and inter
connection products for virtually any electronic application. The group
also deals with static control and corrosion protective products for
pipeline coatings

. Electronic connectors

Static control products

Corrosion protection products

Construction Markets
This group deals with window films, passive fire protection products
and lighting products catering to commercial, residential and automobile
markets. The window film market being the most prominent with brands like
3M Scotchint sun control films and 3MScotchshield Safety &
Security Films. These are sold to homes, buildings and automobile owners.
3M is continuously engineering new developments for films of tomorrow.

3M Scotchtint Sun Control Film

3M Scotchtint Safety & Security Film

3M Passive Fire Protection Products

3M Clip-on Reflectors

Consumer & Office Markets

This group deals with 3M's power brands. These products are widely
recognised and used by a cross section of people.
The Post-it Notes and Scotchbrite Scrub Pads are perhaps the most
visible and widely used amongst these brands. Scotch Magic Tape, Postit Memoboards, 3M Precise Mousing Surface, 3MNomad Floor
Matting are some of the products of this group. Products catering to the
presentations and meetings environment like the Multimedia and

Overhead projectors also complement the portfolio of the Consumer and

Office Markets Group.

Scotch-Brite Scrub Pads and Laminates

Scotch- Brite sponge mops and wipes

Scotchgard Fabric and Leather Protectors

3M Nomad Entry-way System

Safety-walk Slip Resistance Products

Post-it Notes

Scotch Magic Tape

3M Overhead Projectors

3M Transparency Film

3M Flip Frame Transparency Protectors

Post-it Memoboards

3M Multimedia Projectors
3M Ergonomic Products

Products Manufactured/Converted in India

IN OUR FACILITY

UY Connectors

MS2 Connectors

Splicing Rigs

Fibre

Optics

(Pigtails & Patchcords)

Connectors

Assembly

Box Sealing Tapes

Office Tapes

Printed Tapes

Pre-masking Tapes

Masking Tapes

Repacking of chemicals

Automotive Graphics

Conversion of disposable respirators (8710-I)

CONVERSION

Coated & Nonwoven abrasives conversion

Post-it Pads Conversion

3M INDIA GOALS

3M Performance Initiatives

Six Sigma

3M Acceleration

Sourcing effectiveness

e Productivity

3M VISION

TO BE THE MOST INNOVATIVE ENTERPRISE

AND THE PREFERRED SUPPLIER
3Ms Value

 Satisfy customers with superior quality value and services.

Provide investors an attractive return through sustained,
quality growth.
Respect our social and physical environment.
Be a company employees are provided to be part of.

MANAGEMENT OF RECEIVABLES AT 3M
INDIA LIMITED

A typical manufacturing company has receivables to total asset ratio

in the region of 20% to 25%. This represents a considerable investment of
funds and so the management of this asset can have a significant effect on
the profit performance of the company.

Receivables balance as shown in the balance sheet of the company

relates to sales made on credit for which payment has not yet received. They
arise from the sale of goods and services on credit basis. Sales on credit
depend upon the nature of business. To increase the sales volume, generally
the credit facility will be offered to the customers which result in investment
in receivables to maximize return on capital employed. The balance in
receivables account is determined by the number of customers, length of
credit, amount of credit allowed to each customer etc.
To achieve growth in sales and to meet competition in the industry, a
firm may resort to credit sales. Firms offer credit to customer to attract more
business, and the increased turnover will result in increased profit to the
firm. The market in which the firm is doing business is the ultimate
determinant in credit sales and receivables balances.

This project involves a comprehensive study about the receivables

management and the practices followed generally in 3M India Limited.
The study of receivables is done by realizing: Techniques of payment & Collection
Credit Terms
Credit Policy
Control of Accounts Receivables

TECHNIQUES OF PAYMENTS & COLLECTION

3M India Limited adopts a variety of payment & collection techniques.
Customers can adopt any one of the method of payment as per their
convenience. The following are the modes of payments & collection:
Channel financing scheme:

This is a new concept of clubbing the collection mode applicable

for key distributors coupled with funding them. This is a mix of OD
facility and Internet banking. This is a unique arrangement with ICICI
Bank exclusively for the selected Distributors of 3M.
This scheme provides:
Additional liquidity for distributor.
Extended credit period.
But still can pay 3M on time.
Based on B2B model through Overdraft facility.

The information obtained from the customers is entered into the customer
master, which contains all the details relating to a particular customer. So
whenever any customer applies for credit, the same information can be
obtained from the customer master.

Lock boxes:
The use of lock boxes speeds the collecting, processing, depositing
and reporting of payments received through the mail. A lock box is a special
post office box to which companys customers are instructed to mail
payments. The box is checked several times daily by the processing
operation, which is usually operated by bank. Upon receipt, cheques are

immediately entered into cheque clearing process to be converted into funds

for the company.
Electronic funds transfer:
A faster method of collecting funds is to require that payments be
made electronically rather than with a paper cheque. In this system payment
is made by transferring funds directly from payers bank account to receipts
account. This makes the funds immediately available and also eliminates the
cost of handling paper cheques.
Preauthorized cheques:
Preauthorized cheques are pre-printed, unsigned cheques. For
fixed repetitive payments, companies authorize their creditors to draw
cheques on their accounts. The creditor sends the preauthorized cheques to
the bank, which then deposits the funds into creditors account.
This practice of taking preauthorized cheques from the
customers is also followed by 3M India Ltd where in the customers have
to deposit blank have preauthorized cheques with the company in certain
transactions.

Deposit concentration:

Because it is difficult to control funds in many different banks, most

receipt management systems provide for transferring funds electronically
into one or more large accounts. Central accounts can be more closely
managed.

CREDIT POLICY
Like every firm, 3M India Limited also has established its own credit
policy for proper management of debtors, otherwise it will lead to more
outstanding balances in debtors account and the risk of bad debts will also
arise. The important dimensions of 3Ms credit policy are:

 Credit Period
The credit period refers to the length of time customers are allowed to
pay for their purchases. It generally varies from 15 day to 60 days.
Lengthening of credit period pushes sales up by inducing
existing customers to purchase more and attracting additional
customers. This is, however, accompanied by larger investment in
debtors and a higher incidence of bad debt loss. Shortening of credit
period would have opposite influences: it tends to lower sales,
decreases investment in debtors and reduce the incidence of bad debt
loss.
The credit period allowed by 3M to each customer depends
upon:
The group to which the company belongs to.
Nature of business.
Volume of sale generated by the company.
Credit rating of the company.
Cash Discount

Firms generally offer cash discount to induce customers to make

prompt payments. The percentage discount and the period during
which it is available are reflected in the credit terms.
Liberalizing the cash discount policy may mean that the
discount percentage is increased and/or the discount period are
lengthened. Such an action tends to enhance sales (because the
discount is regarded as price reduction), reduce the average
collection period (as customers pay promptly), and increase the cost
of discount.
3M India Limited extends cash discounts only to customers
who generate large volume of sales and are prompt in payment. This
is also done only on their insistence. 3M has a reserve; therefore it
does not feel the need to extend cash discount for the purpose of
early payment.

Collection Efforts
The collection programme of the firm aimed at timely collection of
receivables may consist of the following:

 Monitoring the state of receivables

Dispatch of letters to customers whose due date is approaching
Telegraphic and telephonic advice to customer around the due date
Threat of legal action to overdue accounts
Legal action against overdue accounts
The following precautions are taken by 3M for prompt collection of
debts and accurate maintenance of customer accounts.
Invoices are sent out immediately after delivery of goods.
Checks are carried out to ensure that invoices are accurate.
The investigation of queries and complaints and, if appropriate, the
issue of credit notes are carried out promptly.

CONTROL OF ACCOUNTS RECEIVABLES

There is a time lag between provision of goods and services and the
receipt of cash for them. This time lag can result in a firms working capital
requirements from banks. Any increase in time lag, will cause serious
liquidity problems and sometimes can cause insolvency of the firm.
Economic conditions of business can influence the type and amount of
credit to be offered to the customers. In boom periods, when the demand is
more for the product, risk can be minimized by enticing new customers into
business. In case of recession, the business has to sustain with existing
market and simultaneously minimizing the credit risk.

Role of Credit Control Department

In general, the functions of credit control department are as follows:
Keeping the sales ledger up-to-date.
Dealing with customer queries.
Reporting to sales staff about new enquiries.
Giving references about customers to third arties.
Checking out the customers credit worthiness.
Advising on payment terms.

Credit Cycle
The credit control functions jobs occupy a number of stages of the order
cycle (from customer order to invoice dispatch) and the collectioncycle
(from invoice dispatch to the receipt of cash), which together make up the
credit cycle.
Establish credit status: for new customers who request a credit
extension. Before credit is granted one should satisfy about the
following: does the customer deserve credit? Is it a suitable risk? What is
known about the customer? Can the customer pay? Will it be profitable
to extend credit?
Check credit limit: if the order is fairly routine, and there is no problem
with credit status, then credit control staff examine their records or at
least the sales ledger records to see if the new order will cause the
customer to exceed the credit limit. There are a number of possible
responses, as follows:
i.

Authorization: If the credit demanded is within the credit

limit, and there are no reasons to suspect any problems,
then the request will be authorized.

ii.

Referral: it is possible that the credit demanded will

exceed the limit offered in the agreement.
o The firm can simply refuse the request for credit,
at the risk of damaging the business relationship.

However, credit limits are therefore a reason to

protect the businesss profitability and liquidity.
o The firm can offer a revised credit limit. For
example, the customer may be a solvent, a regular
payee, therefore a low risk. The company might be
able to offer a higher limit to this customer.
o The firm can contact the customer, the request that
some of the outstanding debt has to be paid off
before further credit is advanced.

Issuing the delivery note, invoicing and so on is not the job of the
credit control department, but the credit control department will need to
have access to information such as invoice details to do its job
effectively.
Settlement: The credit control department takes over the collection
cycle, although the final payment is ultimately received by the
accounts department. It involves receiving overdue debts and chasing
them.

Stages in Credit Cycle

Customer
places order

Cash
received

Establish
credit status

Check credit
limit

Telephone
calls

Issue delivery
note
Reminder
letters
Goods
delivered

Statement
sent

Invoice
raised

Customer receives
invoice

The following are the statements prepared by the credit control

department in order to keep the check on the payments and the over dues:
Ageing files.
Classification of receivables into current and non current accounts.
Quarterly accounts receivables.
Collection files.

AGEING FILES

The ageing schedule classifies outstanding accounts receivables at a

given point of time into different age brackets.

The actual ageing schedule of the firm is compared with some

standard ageing schedule to determine whether accounts receivable are in
control. A problem is indicated if the actual ageing schedule shows a greater
proportion of receivables, compared with the standard ageing schedule, in
the higher age group. Most businesses prepare an accounts receivable aging
schedule at the end of each month. Analyzing your accounts receivable
aging schedule may help you identify potential cash flow problems.

The aging schedule can be used to identify the customers that are
extending the time it takes to collect your accounts receivable. If the bulk of
the overdue amount in receivables is attributable to one customer, then steps
can be taken to see that this customers account is collected promptly.
Overdue amounts attributable to a number of customers may signal that your
business needs to tighten its credit policy towards new and existing
customers.

The aging schedule also identifies any recent changes in the accounts
making up your total accounts receivable balance .Business. However, if the
makeup of your accounts receivable changes, when compared to the
previous month, you should be able to spot the change instantly. ? The
accounts receivable aging schedule can help you spot the problems in
accounts receivable, and provide the necessary answers early enough to
protect your business from cash flow problems. The older the accounts
receivable the less likely the money will ever be collected.

The typical accounts receivable aging schedule consists of the

following columns:

1. Column 1 lists the customer code that has been fixed by the company.
2. Column 2 lists the group numbers i.e. the market that the company
belongs to.
3. Column 3 lists the name of each customer with an accounts
receivable balance.
4. Column 4 lists the invoice number.
5. Column 5 lists the invoice date i.e. the date on which the invoice was
issued.
6. Column 6 lists the due date i.e. the date on which the credit is due.

7. Column 7 lists the total amount due from the customers listed in
Column 1.
8. Column 8 is the current column. Listed in this column are the
amounts due from customers for sales made during the current
month.
9. Column 9 shows the unpaid amount due from customers for sales
made in the previous month. These are the customers with accounts 1
to 30 days past due.
10.Column 10 lists the amounts due from customers for sales made two
months prior. These are customers with accounts 31 to 60 days past
due.
11.Column 11 lists the amount due from customers with accounts over
60 days past due.
12.Column 12 lists the total number of days over due.

CLASSIFICATION OF RECEIVABLES INTO CURRENT & NON

CURRENT ACCOUNTS
An aging schedule is first found. From these ageing schedules the
receivables are divided into current and non current accounts. Those who are
overdue <= 0 days they are termed as current, over due by <= 60 days they
are OD between 0-60and those greater than 60 days from the due date OD
>60. These are termed as non current accounts as they are major overdue.
Aging as on due date is classified as
1) Current where the aging days are <=0
2) Non current where the days are <=60 days (OD 0-60)
where the days are >= 60 days (>60 OD)
Non-current is both the OD 0-60 & OD >=60. These are the
receivables overdue
The current OD is those accounts that are currently enjoying the credit
as on the particular quarter.
% current is the =current / grand total

By using this we can find out how many accounts are with the credit

CUSTOMER
A Ltd
B Ltd
C Ltd
D Ltd
E Ltd
F Ltd
G Ltd
H Ltd
I Ltd
J Ltd
GRAND TOTAL

CURREN
T A/C
3702694
1739858
2239346
925673.6
434964.5
2355416
4285795
1394357
588854
276766.4
17943725

NON
CURREN
T A/C
90225.44
775442.8
562349.2
45112.72
193860.7
3413614
876240
343716.3
853403.5
39375.5
7193340

TOTAL
3792920
2515301
2801695
970786.3
628825.2
5769030
5162035
1738074
1442258
316141.9
25137065

period and those who are contributing to the over dues for the particular
quarter.

Classification of receivables into current & non current a/c

Classification of receivables into

current and non current a/c
5000000
4000000
3000000
2000000
1000000
0
A
Ltd

B
C
D
E
F
G
H I Ltd J Ltd
LtdCURRENT
Ltd LtdA/C
Ltd NON
Ltd CURRENT
Ltd Ltd A/C

Analysis
The table and the graph shows that, all the companies except F
Ltd, have a larger portion of their receivables in the current period, i.e., these
companies are still enjoying their credit period. The non current accounts of
these companies are comparatively lower than their current account. F Ltd
shows a higher non current balance. This shows that F Ltd is not prompt in
making their payments. It is taking more time to make their payments than
the time granted to them. A Ltd and D Ltd have negligible non current
accounts.

QUARTERLY ACCOUNTS RECEIVABLES

Once an ageing schedule is prepared every month for each

customer, a statement indicating quarterly receivables payable at every
quarter is prepared. This is used to find out the payment pattern of the
customers. This indicates the customers who are not prompt in their
payments and take more than the time allotted to them to make the
payments. They also show the customers who are prompt in their payments.
Therefore, this statement helps the company to decide on either tightening or
loosening the credit to each customer. This is a tool which is used by the
company to take immediate action, where needed.

Accounts Receivable payable at every quarter:

CUSTOMER
A Ltd
B Ltd
C Ltd
D Ltd
E Ltd
F Ltd
G Ltd
H Ltd
I Ltd
J Ltd
TOTAL

1st
QUARTER
3977260
1391852
852543
1252638
5047051
5070912
5417952
307251.7

2nd
QUARTER
3334033
1851368
2336473
1786594
6244237
5620413
6277750
335391

3rd
QUARTER
3503100
2965973
2696896
1350264
5628593
6467770
5449168
452837.7

4th
QUARTER
4267060
3852011
5320868
730149
5244642
5917025
3503269
5856814

4285492
411062
28014013

5458311
706719.7
33951290

5194417
446119.7
34155140

6022600
110152.5
40824589

Receivables Patable at every

Quarter
8000000
6000000
4000000
2000000
0
A
Ltd

B
Ltd

1st QUARTER

C
Ltd

D
Ltd

2nd QUARTER

E
F
Ltd Ltd

G
Ltd

3rd QUARTER

H I Ltd J Ltd
Ltd
4th QUARTER

Analysis
From the table and the graph one can see that, E Ltd, F Ltd, G Ltd and
I Ltd have larger amount payable at each quarter when compared to other
companies. J Ltd has the least amount due to 3M. H Ltd is showing a
worsening trend, that is, it has been making its payments promptly, except in
the 4th quarter where their amount due has risen drastically. B Ltd and D Ltd
indicate a moderate pattern of receivables payable at each quarter.

COLLECTION FILES

Collection files are prepared to find out the payment pattern of each
customer. By preparing these statements, the percentage payment each
month by every customer can be found. This file also helps in finding which
customer is delaying in making their payments. This again is a tool to take
corrective action against customers who are not prompt in their payments.
From the data base the collection pattern is found out

 The yearly receipt analysis file will have the applied amount, the
invoice date and the remitted date with details of the customer,
the divisions are all given.
With this data base we can find the collections made by a
particular customer over the period

CREDIT TERMS
An important aspect of the credit control policy is to devise
suitable payment terms, covering when should payment be made and how
this should be achieved.
Credit terms have to take into account the expected profit on the
sales and 3Ms cash needs.

 Credit terms also establish when payment is to be received, an

important matter from 3Ms point of view.
In addition to specifications relating to the nature of goods to be
supplied, the terms and conditions of sale normally cover the price,
delivery, date of payment, frequency of payment (if in installments),
and discounts.

Factors influencing Credit Terms

Profit
required

Competitors
credit terms
offered

The credit terms the

seller obtains from
his own suppliers.

Credit
Terms
offered

Special
factors
relating to the
business

The ease with

which the buyer can
go elsewhere
Seasonal
factors

Risk: the
sellers total
exposure

IMPACT OF RECEIVABLES ON CASH

MOVEMENTS

Cash, the most liquid asset, is of vital importance to the daily

operations of business firms. While the proportion of corporate assets held in
the form of cash is very small, its efficient management is crucial to the
solvency of the business because in a very important sense cash is the focal
point of fund flows in a business. In view of its importance, it is generally
referred to as the life blood of a business enterprise.
Motives for holding cash
Transaction Motive
Precautionary Motive
Speculative Motive
While cash serves these functions, it is an idle resource which has an
opportunity cost. The liquidity provided by cash holding is at the expense of
profits sacrificed by foregoing alternative investment opportunities. Hence, a
financial manager should:
1. Establish reliable forecasting and reporting systems
2. Improve cash collections and disbursements
3. Achieve optimal conservation and utilization of funds.

Practice at 3M

After being in the industry for decades, 3M has created for itself a list
of prestigious customers and the list is still growing. 3M attracts customers
through its innovations and goodwill. Based on this, over a period of time
3M has achived an optimal reserve fund. This fund helps 3M when
receivables are not received on time.
Since the collection function is outsourced to ICICI Bank, 3M does
not depend on the receivables for its functioning. The reserve created serves
the purpose.
Thus, the receivables have very less impact on the cash movements of
3M India Limited.

FINDINGS

 The finance department of 3M India Limited is further divided

according to their functions, namely; credit management, collection
control, cash management, etc.
As 3M serves five markets, the credit management of these markets is
allotted to different groups.
At 3M India ltd, as the companys groups serves different markets,
each group has its own credit policies and terms on which they
conduct their business.
The ageing files are used as the database for the preparation of other
reports.
3M has a tie up with ICICI bank for the purpose of collecting the
payments from the customers. The ICICI bank does the collection
from the customers on behalf of 3M India. The ICICI bank matches
the invoices against collections and sends the files to the company.
For the purpose of making payments, 3M has an alliance with CITI
bank.

 3M India has an online order processing system called olops(online

orderprocessingsystem). When any order is placed with the company it is
entered in the olops. When the order is processed, an invoice is
generated. As olops and accountsreceivable module are inter-related, the
information is transferred to the accounts receivable i.e., the A/R
module.
3M also provides its customers the facility of finance called the
channel financing scheme. This is a new concept of clubbing the
collection mode applicable for key distributors coupled with funding
them. This is a mix of OD facility and Internet banking. This is a
unique arrangement with ICICI Bank exclusively for the selected
Distributors of 3M.
After the credit granting decision is made, 3M sets different targets for
different customers based on their resources, the payment history,
billing pattern and references of business group

SUGGESTIONS

Regular checks should be conducted to keep a track of the amounts

that are outstanding beyond the due date.
Records of customers who have crossed the target limit should be
maintained.
The co-ordination between the sales personnel and the credit
management executives should improve in order to avoid disputes
between the customers and the company.
The collection files should be updated on time in order to avoid delay
in judgements.
Regular conciliation of customers account with the statement of
accounts in the company should be done to avoid disputes with the
customers.
The credit and collection policies should be clearly communicated to
all the customers to avoid misunderstandings.
Cash discounts should be offered to customers, who are consistently
delaying in payments, to ensure faster payments.

 Customers who are identified as high-risk accounts should not be

approved without security, in the form of pre-authorized cheques.
Customers credit limit should be checked before finalizing any
further deals.
The company should follow a standard procedure to assess the credit
worthiness of new customers.