The monitoring system for dynamics and timely collection of receivables is organized as an independent block of a common financial control system in the company.

Methodology

The largest and most doubtful types of accounts receivable are controlled in the first place, then there are medium and small ones, which do not have any serious impact on the overall performance of the company.

If refinancing of accounts receivable is required, then factoring, forfaiting, or bill discounting, issued by the customers, purchasing production, may be used.

A condition, when the average quantity of the company’s accounts receivable (at its normal financial condition) may give such additional profit, which exceeds the amount of expenses on the accounts receivable servicing and the losses due to nonrecoverable debts of mala fide purchasers are used for checking purposes of the accuracy of the currently selected credit policy type .

The accounts receivable is written off for the profit shrinkage or doubtful debts reserve at the end of a limitation period. Debt relief is documented by the director’s order.

Settlements with buyers, customers, and other debtors make an essential part of the accounts receivable.

The moment of accounts receivable incurrence is mainly defined by the conditions of concluded contracts and is connected with the moment of realization of goods (works, services).

After the title to goods has passed to the contractor, the results of the work have been rendered, or the cervices have been performed, our partners are obliged to perform reciprocal actions (payment or a counter delivery), and therefore, there originates an accounts receivable.

Consequently, the accounts receivable arises in the following cases:

-        at the transfer of titles to goods;

-        at the rendering of the results of the work, or services.

In concordance with the Federal law "On Accounting" all business transactions are liable to timely registration on the accounts of business accounting, on the grounds of the primary accounting documents. A primary accounting document is made up at the moment of operation performance or just after its completion.

The moment of transfer of titles to goods may be indicated separately in the agreement; and then, the accounts receivable is reflected in the business accounting in concordance with this moment.

In case the agreement says nothing about the transfer of title, the moment is counted as a due one at the moment of goods dispatch by the vendor, considering that pursuant to article 459 of the Civil Code of the Russian Federation "unless otherwise provided by the sale and purchase agreement, the risk of accidental destruction or accidental damage of the goods passes to the buyer at the moment, when, according to the law or the agreement, the vendor is considered to have performed his obligations on the transfer of goods to the buyer".

Accordingly, the accounts receivable is generally reflected:

1) after the signing of the documents for goods dispatch;

2) after the signing of the act of provided services.

The accounts receivable may be divided into the current one and long-term for the purposes of analysis. The current accounts receivable should be received within a year or a usual operating cycle.

The operating cycle includes the following: funds transfer as a payment to the supplier in advance, reception and storage of production material assets, storage and realization of manufactured goods, and collection of receivables as well.

The level of accounts receivable is defined by various factors: type of production, absorption of market, degree of market saturation with the given products, payment policy with the customers, which is accepted in the company. It should be mentioned that the last factor is of extreme importance.

The accounts receivable has a twin nature if to look from a perspective of financial management. On the one hand, "normal" growth of accounts receivable indicates the increase of earning capacity and the liquidity enhancement.

On the other hand, not each amount of the accounts receivable is allowable to the company; it is because the growth of unjustified accounts receivable can also cause the loss of liquidity.

The accounts receivable is a considerably "mobile" balance sheet figure of the company. A usual business activity of the company includes regular payments for the created indebtedness; moreover payment methods can very greatly.

Usually the methods of obligation performance (payment, counter delivery at goods exchange operations, payment with the bills of exchange etc.) are provided by the agreement between economic entities.

However, in case of mutual agreement the settlements between companies can be performed using other methods, which have not been foreseen in the agreement.

The main methods of indebtedness cancellation are widely known.

1. Payment with money means.

2. Netting.

3. Payment with bills of exchange.

4. Assignment of receivables

5. Conversion of debt.

6. Debt forgiveness.

Accounts receivable is an inevitable consequence of the actual system of cash payments between organizations, wherein there is always a time gap between the payment and the moment of transfer of title to goods, and between the submission of invoice documents due for payment and the time of their actual payment.

The analysis of accounts receivable includes a set of inter-related issues, related to the evaluation of financial position of the company.

The demand for that arises in managers of corresponding services; auditors, who check for the correctness of the reflection of customer’s debts and creditor’s indebtedness; and in financial analysts of credit companies and investment institutions. But primarily the company managers should pay a principle emphasis on the analysis of debt obligations.

The total sum of accounts receivable on the operations, connected with the realization of production, goods and services, depends on two main factors: the volume of credit sales, which is without prepayment or payment on the spot, and the average duration of time between the delivery (shipping) and provision of documents for payment. The amount of this time is defined by the credit and accounting policy of the company, consisting of the following:

-        detection of the acceptable risk level of goods issue in debt;

-        calculation of the credit period time, which is the duration of time of the subsequent payment of issued invoices;

-        stimulation of prepayment by means of price discount provision;

-        encashment policy, applied by the company for the payment of outstanding bills.

The dynamics of accounts receivable, intensity of its increase or decrease have a great influence on the turnover of the capital, invested into the current assets, and, consequently, the financial condition of the company

The data of analytical accounting, primary documentation and performed settlements is used for the analysis apart from the balance index and supplements to it.

These indices may be systematized for the study and evaluation of the structure and prescription of the accounts receivable formation.

Value together with the quality of accounts receivable have a significant importance for the organization. It is characterized by the range of parameters:

-        share of debt obligations, secured by a pledge, a guarantee or a bank guarantee;

-        ratio of payment by drafts;

-        a share of doubtful debt reserves in the aggregate amount of accounts receivable;

-        ratio of overdue debts in their aggregate.

Reduction of the share of ensured accounts receivable, including the bill of exchange coating, a drop in reserves on doubtful debts, increase of value and ratio of the overdue liabilities indicate the loss of quality of this indebtedness, increase of loss risk and negative profit at its non repayment.

If you initially sell in debt only for the most trustful and only credit worthy customers, the company will not have negative profit and losses from the overdue or accrued liabilities of debtors.

However, the volume of sales, and, consequently, of manufacture, is comparatively small, considering that the quantity of prompt payers is always limited.

Profit from such sales is not large, because their cost value will be higher than with normal realization volumes due to the appropriation of overhead expenses of small quantity of goods.

The delivery of products and goods without immediate or anticipated payment to less safe customers and clients may considerately increase the volume of sales and potential profit; but it also increases the risk of the failure to pay or the delayed payment.

Detection of the level of acceptable risk of sale in debt is based on the comparison maximum of permissible fluctuating charges for the provision of goods credit with the amount of profit from the increased sales.

The risk of commercial loan depends on the financial condition of the customer, creditworthiness of the establishment of the vendor, the structure of his capital, possibility of loan security, and conditions of its provision to the customers.

Detection of the level of acceptable risk of sale in debt is based on the comparison maximum of permissible fluctuating charges for the provision of goods credit with the amount of profit from the increased sales.

It is not exceptionable to ask for such records from the customer or make him a condition of a bargain to get guarantees of payment on the account of some respectable bank, guarantee, payment of advance money etc.

The equity structure is defined on the basis of the analysis of its constituent elements.

The efficiency of their use is estimated with the use of relative ratio and coefficients.

A special emphasis is paid to the indices, which are directly relevant to the risk of credit sale: debt obligation attitude to a general cost of the total cost of capital requirement, balance of current assets and liabilities, current ratio of credit debts etc.

Liquidation property of the organization, which can be thought of as a loan, may be a guarantee of a commercial loan. When the goods are issued on credit, it is necessary to take into account a general condition of economics at present, the position of the customer and the seller at the market of corresponding goods as well as traditional conditions, foreseen by the agreement.

It is not an easy thing to get and estimate the information on the creditworthiness of the would-be customer, which would allow to credit him by the issue of goods in debt without a special risk of the supplier.

A lot of western countries have special agencies, which gather such information and then provide it in exchange for money.

Based on this information on the company, the seller may create a kind of creditworthiness rating of his customers and have an individual credit-merchandising regarding every client depending on the received information.

The accounts receivable risk includes a potentiality for its significant increase of the risk, the growth of bad debt and total time spent for the settlement of obligations.

A considerable increase of goods issue on credit, prolongation of credit time, the increase in the number of bankrupt organizations among the customers, and general deterioration in the business environment within the country and worldwide notify about the opportunity of strengthening of such a risk.

Accounting peculiarities

Every enterprise keeps a special method of accounting depending on the settlement type with customers and clients.

If the company conducts cash payments with its customers (population, or legal bodies), it should obligatory use cash register machines. Besides, the organization should give a cashier's check to each customer, which approves the reception of cash.

Cheque duplicates (checkout tapes) and other such documents should be kept by the organization within 15 days from the conduction of the last inventory and the examination of commercial reports.

The organizations of small retail trade with hand trucks, trays etc; who conduct business in distant and hard-to-reach areas; distribute receipts, trip tickets, tickets, vouchers, postage stamps etc. may avoid using cash register machines for the settlements with population.

Wholesale establishments, as well as those, delivering their products to regular customers, have cashless transfers with their customers and clients.

The basic forms of settlements are shown in the table 1.

Table 1

Basic Forms of Settlements with Buyers and Customers

The primary documents to account 62 “Settlements with purchasers and clients” are the following: detailed tax invoices, consignment notes, acceptance-transfer certificates.

The ledger of the present account is a statement, which combines synthetic and analytical records, and should contain the information on business transactions, which is systematized and collected, apart from the corresponding accounts in chronological order.

A synthetic nominal account 62 “Settlements with purchasers and clients” is used for the settlements with buyers and customers.

As for the debit of the present account the increase of trade debtors is shown. As for the credit, we can notice the reduction of the accounts receivable, which is the customers payment for the received goods, work or services or writing-off the accounts receivable.

If the organization uses a cash register machine for the sale of goods, works, or services by retail as it is rather difficult and time-taking to record every operation as a separate item. Therefore, the accountant makes the following record at the end of the working day:

Debit side of account 50 “Carrying value”

Credit side of account 90 “Sales”

In case the delivery of goods, work or services does not coincide with the time of reception of money assets, the company will have the accounts receivable, but the customer will have the accounts payable respectively.

Consequently, the organization provides the accounting documents to the customer or the client for the amount of payment of the dispatched goods, or rendered works / services, and makes the following accounting entry:

Debit side of account 62 “Settlements with purchasers and clients”

Credit side of account 90 “Sales”

If the company sells unused property assets, surplus of raw materials and other material and non-materials assets, i.e. performs not a usual business activity, the following accounting entry is made:

Debit side of account 62 “Settlements with purchasers and clients”

Credit side of account 91 “Miscellaneous income and expenses”

At the payment of indebtedness by the customer the accountant indicates present operation in the accounting with the following record (depending on the method of payment):

Debit side of account 50 “Carrying value”, 51 “Transaction accounts”, 52 “Currency accounts”

Credit side of account 62 “Settlements with purchasers and clients”

Settlements with purchasers and clients with a scheduled payment and prepayment are considered as advances received in the business accounting.

The sums of advances received are indicated in the subsidiary account of account 62 “Settlements of received advances”

At the moment of transferring of the advance by the customer to the organization the following accounting entry is made:

Debit side of account 50 “Carrying value”, 51 “Transaction accounts”, 52 “Currency accounts”

Credit side of account 62 “Settlements of received advances”

At the transition of goods, performing of works or rendering of services to the customers or clients, on the account of which the advance was received, its sum is accounted and the following internal accounting entry is made:

Debit side of account 62 “Settlements of received advances”

Credit side of account 62 “Settlements with purchasers and clients”

If the advance received is not equal to the value of shipped goods, rendered services or performed works, the customer shall pay the remaining amount of cost.

This operation is indicated by the corresponding entries in the accounting.

If the settlements with buyers and customers are performed in the form of netting, then each company should make a corresponding accounting entry on the day, which is stated in the statement as a day of conduction of the netting:

Debit side of account 60 “Settlements with suppliers and contractors”

Credit side of account 62 “Settlements with purchasers and clients”

If after the conduction of the netting any company still has an accounts receivable, then the customer of the company should pay its debt.

In case of delay of payment you should:

1.             indicate the income on the date of transfer of title to goods to the buyer in the accounting entry:

Debit side of account 62 “settlements with purchasers and clients”

Credit side of account 90 “Sales”

2.             accrue interests for the delay of payment:

Debit side of account 62 “Settlements with purchasers and clients”

Credit side of account 90 “Sales”

The following accounting entries are made at the assignment of receivables:

debt relief –

Debit side of account 91 “Miscellaneous income and expenses”

Credit side of account 62 “Settlements with purchasers and clients”;

Receipt of monetary funds from the third party–

Debit side of account 51 “Transaction accounts”

Credit side of account 91 “Miscellaneous income and expenses”;

writing-off of the negative profit –

Debit side of account 99 “Profits and losses”

Credit side of account 91 “Miscellaneous income and expenses”

If the company performs long-term works (construction, geologic, design, scientific etc.) and supplies the work to the customer in parts but not as a whole, then account 46 “Fulfilled stages of uncompleted works” is used for the settlements with buyers and customers; and the following accounting entry is made:

Debit side of account 62 “Settlements with purchasers and clients”

Credit side of account 46 “Fulfilled stages of uncompleted works” – for the sum of the works performed.

Operations on the accord and satisfaction agreement are indicated similar to the operations on the netting in the company’s accounting.

Analytical records on the account 62 are recorded for every customer or client. Keeping of analytical records should provide the data reception on the customers and the clients using accounting documents, the term of payment of which has not come yet; customers and clients on the unpaid accounting documents within the time-limit; and advances received.

But there are such situations when the customer or the client cannot repay a debt to the company with money assets or his own property (for example, bankruptcy of the organization, non-creditworthiness of the legal body etc.).

Therefore, at the end of legal limitation the accounts receivable of the company is liable to be written-off.

The period of limitation begins from the completion of maturity, if it is not defined, or from the moment when a creditor gets the right to raise a demand on the fulfillment of obligations.

The organization may demand a defense in the court or arbitrage at that time.

The accounts receivable with the expired term of legal limitation, detected as a result of inventory, is written off (on the basis of the order of the director) using any of the following methods:

-        Debit side of account 91 “Miscellaneous income and expenses”

Credit side of account 62 “Settlements with purchasers and clients” i.e. it is written off the account due to the diminution of profit.

-        Debit side of account 63 “Reserve for doubtful debts”

Credit side of account 62 “Settlements with purchasers and clients” i.e. it is written off the account due to the previously created reserve of doubtful debts.

But in this case the accounts receivable is not considered to be canceled, and the organization can still recover it by means of change of property condition of a debtor.

It is taken into account on the off-balance account 007 “Indebtedness of insolvent debtors written off to losses” within 5 years from the moment of writing-off.

At the receipt of funds on the previously written off accounts receivable the following accounting entry is made:

Debit side of account 50 “Carrying value”, 51 “Transaction accounts”, 52 “Currency accounts”

Credit side of account 91 “Miscellaneous income and expenses”

The off-balance account 007 “Indebtedness of insolvent debtors written off to losses” is credited simultaneously.

Therefore, depending on the activity type the company is engaged in, and relations between the company and its customer or client, the authority may choose any method of payment with the clients and organize the most convenient choice of the data settlement recording.

The methods of payment between the supplier and the customer in relation to the bank accounts are defined in “The Provision on the Cashless Settlements in the Russian Federation”, by Central Bank of the Russian Federation dated October 3, 2002. The cashless settlements are the following:

-        payment orders;

-        letters of credit;

-        cheques;

-        encashment.

The methods of payment are selected by the customer and are agreed upon with the organizations, supplying goods, rendering work or services, in the economic agreement.

The supplier and the customer may terminate their obligations via a netting agreement. It is enough to have an application from one party only for the netting.

Article 410 of Civil Code of the Russian Federation allows organizations to perform netting, if their mutual obligations are as follows:

-        cross obligations (the creditor in one obligation is a debtor in another one and it is not disputed);

-        similar obligations (they may be measured, for example, in money terms);

-        the term of their execution has not become due, is not indicated in the agreement, or is defined by the moment of claiming.

At the assignment of receivables the organization writes off the accounts receivable of the customer on the account of money assets of a new creditor.

In addition, according to RAS 19/02 “Accounting of financial investment”, the accounts receivable, acquired by virtue of the treaty on the assignment of receivables, is referred to financial assets in the new creditor, and is taken in the bookkeeping according to the actual cost on its purchase.

The accounts receivable, liable to be written off, is revealed according to the results of inventory of obligations.

The revealed results are reflected in the inventory report of settlements with buyers and customers, and other debtors and creditors. A written grounding is attached to the report.

The director issues an order on the debt relief based on these documents.

Writing-off of the accounts receivable is possible in the following cases:

1.             When it is considered to be unreal to collect. It is a possible because of the liquidation of a juridical person (debtor’s organization). According to Article 419 of the Civil Code of the Russian Federation the obligations on settlements are terminated in this case, and a document, on the grounds of which it is unreal to recover debt, is the record of the liquidation of a juridical person in the Uniform State Register. It is documented by the statement from tax inspection, where the debtor's organization is registered.

2.             In case the period of limitation is expired, i.e. the period, during which it is possible to institute a claim to the debtor for the failure to fulfill his obligations. The period of limitation according to article 196 of the Civil Code of the Russian Federation is counted from the completion of maturity and makes three years. Article 197 of the Civil Code of the Russian Federation allows to set special periods of limitation for certain demands, either shortened periods of limitations, or lasting longer in comparison with the general term.

The period of limitation may be terminated. According to Article 203 of the Civil Code of the Russian Federation the validity period of legal limitation after its interruption begins all over again. The time, expired before the interruption, is not counted into the new term.

The interruption may take place in two cases:

1.             The customer has acknowledged his debt, which means that he has partially repaid his debt or paid interests for the delay of payment, signed the Reconciliation Act of Mutual Payments, or written an application on the netting etc.

2.             The creditor's organization has petitioned the court with claim. If, however, the court has failed to investigate the case, the period of limitation is not terminated.

The accounts receivable of customers and clients is written off on the account of doubtful debt reserve or on the finance results in the profit-making organization. In the last case such expenditures are liable to reflection as a part of miscellaneous costs of the organization.

As can be seen from the above, regulatory documents of the Russian Federation specify the methods of payment with customers and clients, the methods of their accounting, as well as the procedure for the writing-off of the organization’s accounts receivable.

Summarizing the theoretical part, we may notice, that the efficient organization of the receivables analysis and management may solve the following problems, which the company faces:

-        the provision of constant and effective control for the condition of indebtedness, timely reception of true and complete information on the condition and dynamics of the indebtedness, necessary for the management decision making;

-        the observance of admissible sizes of accounts receivable and their optimal balance;

-        securing of timely receipt of funds on the debtors and creditors accounts, excluding the application of penal sanctions and infliction of damage;

-        detection of bankrupt and dishonest payers;