Account receivable management in viglacera packings and brake linings joint stock company

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** BACHELOR’S THESIS IN FINANCE Account Receivable Management in Viglacera Packings and Brake Linings Joint Stock Company Student’s name: Ngô Thu Hường Class: Advanced Finance Intake: 50 Internship guide: Trương Đỗ Tấn Supervisor: Assoc Prof Dr Trần Thị Vân Hoa Hanoi - 2012 i ACKNOWLEDGEMENT My thesis is completed with support of Dr Trần Thị Vân Hoa, Mr Trương Đỗ Tấn, all employees in Viglacera P&B Co, my friends in Advanced Finance Intake 50 and my family First of all, I would like to give special thanks and deepest gratitude to my supervisor, Dr Trần Thị Vân Hoa, for her advices and instructions They are very helpful for me in building the frame of my report And her comments help me completed this report in the best way I also want to thank Mr Trương Đỗ Tấn – chief accountant in the company I internshiped He is very enthusiasm for providing me all data and information I needed His guides about professional knowledge are really supportive for me My gratitude is also sent to all officers in Finance-Accounting Department for their guides Thanks to them, I get lots of useful working experiences through this internship period And it is my honor to work with them I highly appreciate all opportunities that I have been provide to practice and learn about real business operations, as well as apply what I got from university to solve real problems I want to thank all my classmates in Advanced Finance Intake 50 for their great advices and creative ideas Finally, I offer my regards to my family for the support and encouragements Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 ii TABLE OF CONTENTS ACKNOWLEDGEMENT i TABLE OF CONTENTS ii ABSTRACT v ABBREVIATION vi LIST OF TABLES vii LIST OF FIGURES viii INTRODUCTION CHAPTER THEORETICAL FRAMEWORK OF ACCOUNT RECEIVABLE MANAGEMENT 1.1 Account receivable: .5 1.1.1 Definition: 1.1.2 Content of account receivables: 1.1.3 Roles of account receivables for an enterprise: 1.2 Account receivables management: 10 1.2.1 Definition: 10 1.2.2 Roles of account receivables management: .11 1.2.3 Account receivables management processing: 11 1.2.3.1 Trade credit policy: 12 1.2.3.2 Analysis of customers’ prestige (6 C’s of credit): 16 1.2.3.3 Analysis of the proposed credit amount: 19 1.2.3.4 Monitoring account receivable: 19 1.2.3.4.1 Days sales outstanding (DSO): 20 1.2.3.4.2 Aging schedules: 21 1.2.3.4.3 Credit ratings: 22 CHAPTER THE CURRENT SIATUATION OF ACCOUNT RECEIVABLE MANAGEMENT IN VIGLACERA P&B CO 24 2.1 Overview of Viglacera Packings and Brake Lining Joint Stock Company: 24 2.1.1 The process of establishment and development of Viglacera P&B Co: 24 Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 iii 2.1.1.1 General information: 24 2.1.1.2 The history of establishment and development: .24 2.1.2 Major business activities: 26 2.1.3 Organizational structure: 29 2.1.4 The market situation and competitors: .30 2.1.5 Business results in three recent years: .31 2.2 The current situation of account receivable management in Viglacera P&B Co: 34 2.2.1 Account receivables in Viglacera P&B Co: 34 2.2.2 Account receivable management in Viglacera P&B Co: 37 2.2.2.1 The current trade credit policy of Viglacera P&B Co: 37 2.2.2.2 Monitoring account receivables: 39 2.2.2.2.1 Days sales outstanding: .39 2.2.2.2.2 Aging schedule: 40 2.3 Achievements and shortcomings of account receivable management in Viglacera P&B Co: 41 2.3.1 Achievements: 41 2.3.2 Shortcomings: 42 2.3.3 Reasons for shortcomings in Viglacera P&B Co’s account receivable management:43 2.3.3.1 Subjective reasons: 43 2.3.3.1.1 The company’s selling policy: .43 2.3.3.1.2 Human resource: 44 2.3.3.1.3 Technology: 44 2.3.3.1.4 Credit policy: .44 2.3.3.1.4.5 Monitoring account receivable: 49 2.3.3.2 Objective reasons: 45 2.3.3.2.1 Business environment: 45 2.3.3.2.2 Dishonesty of customers: 46 CHAPTER SOLUTION TO IMPROVE ACCOUNT RECEIVABLES MANAGEMENT IN VIGLACER P&B CO 47 3.1 Development orientation of Viglacera P&B Co in following years: 47 Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 iv 3.1.1 Development orientation: 47 3.1.2 Financial objectives: 47 3.1.3 Account receivable management objectives: .47 3.2 Solutions to improve account receivable management in Viglacera P&B Co : .47 3.2.1 Human resources: 47 3.2.2 Technology: .48 3.2.3 Credit policy: .49 3.2.4 Monitoring account receivable: 56 3.2.4 Other solutions: 51 CONCLUSION 52 REFERENCES APPENDIX A Income Statement APPENDIX B Balance Sheet INTERNSHIP REPORT ASSESSMENT Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 v ABSTRACT As a student of National Economics University and especially as a finalyear student, I want to practice all my knowledge about economy, market, finance, etc that I learned from my lecturer and by myself And in the internship period, I have opportunity to practice in Viglacera Packings and Brake Linings Joint Stock Company (Viglacera P&B Co) – a small and medium company to carry out my knowledge to reality In a more and more complicated business environment as nowadays, a good management will help the company be more successful than its competitors After researching Viglacera P&B Co’s business performance in recent years and receiving consultants from many people, I decide to choose the topic about account receivable management Through my thesis, we will know achievements and shortcomings in Viglacera P&B Co’s account receivable management And in conclusion, I give my own solutions and recommendation to help Viglacera P&B Co solve its problem in account receivable management This thesis might get into inevitable issues and lead to further questions due to limited knowledge, therefore I would be grateful to receive any constructive comments to help my thesis better and have more practical value Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 vi ABBREVIATION CFO: Chief Financial Officer DSO: days sales outstanding ACP: average collection period ADS: average daily sales Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 vii LIST OF TABLES Table 1: Example of aging schedule 21 Table 2: Viglacera P&B Co’s quantity and price of goods sold from 2009-2011 32 Table 3: Key financial indicators of Viglacera P&B Co .33 Table 4: Structure of account receivables in Viglacera P&B Co 35 Table 5: Structure of account receivables from customers 36 Table 6: Viglacera P&B Co’s days sales outstanding 39 Table 7: Viglacera P&B Co’s aging schedule .40 Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 viii LIST OF FIGURES Figure 1: Principle of account receivable management processing 11 Figure 2: The process of analyzing the customers’ prestige .16 Figure 3: Organizational and managerial structure .29 Figure 4: Sales and profit growth 31 Figure 5: Value of account receivables compared to total assets 34 Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 INTRODUCTION Rationale: Vietnam is integrating more and more deeply into world economy This is expressed through the active participation of Vietnam in economic forums in the world Vietnam has commercial relations with more than 165 nations and diplomatic relations with over 171 countries in all continents It is also the place where have hosted many conferences of organizations like ASEAN, APEC, ASEM, etc And becoming the 150th member of WTO in 2007 is a major turning-point for Vietnam This opened many development opportunities for home enterprises such as expanding the market, accessing to modern technology and investment capital sources from foreign countries However, it also brings difficulties like increasing competition pressure for Vietnamese enterprises because of entering of many foreign brand names; increasing risk of bankruptcy for weak companies, etc In general, as integrating, Vietnamese economy will be more influenced by fluctuations of the world economy In the last months of 2008, we witnessed what is being called the worst financial crisis since the Great Depression of 1929-30 In 2009 and 2010, the world economy still suffered repercussions of that crisis; just some economies had sign of recovery And in 2011, again, the world experienced another economic crisis We can see its influences clearly on Vietnamese enterprises though media channels and newspapers There are so many enterprises having difficulties, stopping production or even going bankrupt Hard economic conditions like high interest rate, inflation, increases in the price of raw materials, petrol, gas, etc make business environment more arduous As one of results, debts between enterprises and banks or between enterprises are growing Sometimes customers – are individuals or most are other enterprises - buy products on credit Especially with the current situation, because of lacking capital, customers mainly buy on credit Then, this transaction creates debts among enterprises and those debts are recorded as account receivable in asset side of balance sheet of the enterprise that is seller Managing debts means managing account receivables With huge amount, account receivables have large effect on business Assoc Prof Dr Trần Thị Vân Hoa Ngô Thu Hường – AF 50 ... period in Viglacera Packings and Brake Linings Joint Stocks Company, I realized some problems in account receivable management With the practical significance is finding solutions to improve account. .. practice in Viglacera Packings and Brake Linings Joint Stock Company (Viglacera P&B Co) – a small and medium company to carry out my knowledge to reality In a more and more complicated business... ACCOUNT RECEIVABLE MANAGEMENT IN VIGLACERA P&B CO 24 2.1 Overview of Viglacera Packings and Brake Lining Joint Stock Company: 24 2.1.1 The process of establishment and development of Viglacera