LV Thạc sỹ_Solutions to enhance receivable management in Agrexport

-0- NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATION PROGRAM ************ BACHELOR’S THESIS SOLUTIONS TO ENHANCE RECEIVABLE MANAGEMENT IN AGREXPORT -1- INDEX INDEX LIST OF TABLES .4 LIST OF FIGURES PREFACE Chapter 1: Introduction 1.1 Purpose of research 1.2 Methodology .7 1.3 Structure of research Chapter 2: 2.1 Literature Review .9 Concept of receivable .9 2.1.1 Reason of forming receivable .9 2.1.2 Definition and classification of receivables 2.1.2.1 Based on origination 2.1.2.2 Based on the ability to be collected 10 2.1.2.3 Based on requirement of collateral 10 2.2 Concept of receivable management 11 2.2.1 Purpose of receivable management 11 2.2.2 Process of receivable management 11 2.2.2.1 Step 1: Building credit policy 12 2.2.2.2 Step 2: Monitoring receivable 14 2.2.2.3 Step 3: Collecting receivable .16 2.2.2.4 Step 4: Handling with bad debts 16 2.2.3 Receivable management ratios 20 2.2.3.1 Account receivable turnover 20 2.2.3.2 Average collection period 20 2.2.3.3 Collection Effectiveness Index (CEI) 21 2.2.4 Factors influencing on receivable management 22 2.2.4.1 Internal factors 22 2.2.4.2 External factors 26 Chapter 3: 3.1 Receivable management situation in Agrexport .28 3.1.1 Corporate overview 28 Corporate Profile .28 -2- 3.1.2 History of establishment and development .28 3.1.3 Organizational Structure 30 3.1.4 Business development of Agrexport 32 3.1.4.1 Export- Import Scale 32 3.1.4.2 Exporting 33 3.1.4.3 Importing 35 3.2 Receivable situation in Agrexport 37 3.2.1 Receivable management department 37 3.2.2 Credit policies 37 3.2.3 Recording account receivable 38 3.2.4 Following up and collecting receivable 39 3.2.5 Handling with to bad debts .42 3.2.5.1 Collecting of bad debt 42 3.2.5.2 Making allowance for doubtful debt 43 3.2.5.3 Writing off uncollectible debt as bad debt expense 44 3.2.5.4 Bad debts situation in Agrexport .45 3.2.5.5 Legal actions with overdue debt 47 3.3 Achievement and existing problems .48 3.3.1 Achievement .48 3.3.1.1 Building a complete receivable management system 48 3.3.1.2 Suitable credit policy 48 3.3.2 Existing problems .48 3.3.2.1 High bad debts 48 3.3.2.2 Long average collection period 49 3.3.2.3 Overload for employees .49 Chapter 4: Solutions to enhance receivable management in Agrexport 51 4.1 Agrexport’s perspective of receivable management .51 4.2 Solutions to enhance receivable management 51 4.2.1 Applying cash discount to encourage early payment .51 4.2.2 Building up customer’s credit rating 52 4.2.3 Improve employees’ competence 54 4.2.4 Organize a specialized department for debt management 55 4.2.5 Building debt controlling system .56 -3- 4.2.6 4.3 Factoring bad debts 57 Recommendation for government 57 CONCLUSION 58 REFERENCE 59 -4- LIST OF TABLES Table 1: Agrexport’s import-export turnover from 2008 to 2010 .33 Table 2: Exporting products from 2008 to 2010 34 Table 3: Exporting markets from 2008 to 2010 35 Table 4: Importing products from 2008 to 2010 35 Table 5: Account receivable in Agrexport office 39 Table 6: Agrexport’s receivable from 2008-2010 .40 Table 7: Agrexport’s receivable management ratio from 2008 to 2011 41 Table 8: Agrexport’s bad debts and account receivable from 2008 to 2011 .46 -5- LIST OF FIGURES Figure 1: Process of receivable management .12 Figure 2: Process of handling with bad debts .17 Figure 3: Procedure of making decision of grant credit sale 23 Figure 4: Cost of maintaining receivables 25 Figure 5: Logo of Agrexport 28 Figure 6: Organizational Structure of Agrexport 30 Figure 7: Organizational structure in Finance and Accounting Department in Agrexport 37 Figure 8: Process of building customer’ credit rating 54 -6- PREFACE 2011 was a difficult year for Vietnam economy High inflation and monetary tightening policy resulted in the delay of production It was estimated that more than 50,000 firms went bankruptcy and thousands faced financial difficulty There was considerable increase in the rate of inventory, leading to high receivable and considerable bad debts The above fact arise firm’s owners’ specific attention about receivable management Agrexport – Hanoi Agricultural produce and foodstuff import-export one member company limited- was born in 1963 with the purpose of boosting agricultural and foodstuff importing and exporting activities Going through more than 50 years of development, Agrexport has continuously improved its management, organization and overcome hardship to realize as one of the leading firms in foodstuff exportingimporting industry Under the complicated macro-economics conditions in 2011, Agrexport faced many difficult problems, in which receivable takes the most considerable account Increasingly receivable and the rise of bad debts require Agrexport’s board of directors and employees to review and re-assess its receivable management system Being aware of the above facts in account receivable management in Agrexport, I had taken the research on account receivable management and write the thesis: “Enhance account receivable management in Hanoi Agricultural produce and foodstuff import-export Agrexport” I want to say thanks to Ms …, employee of Agrexport and Ph.D…, guidance for supporting me to finish this thesis -7- Chapter 1: Introduction 1.1 Purpose of research Capital plays an important role in firms’ operation Capital will influence the scale of production, equipments and so on In addition, investors, partners and firms’ executive board also pay attention to firms’ receivable situation Good receivable situation reflects a healthy and stable financial situation To achieve good receivable situation, firms need to activities to control its receivable management The management of accounts receivable is an extremely important function since effective receivable management speeds up cash flow utilization and limits loss and expense Therefore, it is very necessary for each business entity to analyze its receivable situation and the efficiency of its receivable management During the internship period in Agrexport, I realized some achievement and existing problems of receivable management in Agrexport such as high bad debts,long average collection period Thus, I had taken that research and written this thesis with subject: “Solutions to enhance receivable management in Agrexport.” The thesis provides the overview and summary about the theory about receivable and receivable management The thesis also clarify the receivable and receivable management situation in Agrexport, and give some solutions and recommendations to enhance receivable management in Agrexport The thesis is to answer following questions:  What is receivable and receivable management?  How was Agrexport’s receivable managed from 2008-2011?  What are the solutions to enhance Agrexport’s receivable management? 1.2 Methodology The thesis is written based on following sources: primary data and secondary data The primary data includes materials provided by employees from Finance and -8- Accounting Department in Agrexport, interviews Secondary data was collected through reading books and finding information on Internet Both of data was analyzed by methods: quantitative analysis and qualitative analysis Quantitative analysis is conducted based on data which is collected through internship in Agrexport Qualitative analysis is analysis based on my own opinion and assessment about Agrexport’s effectiveness in business activities 1.3 Structure of research This research includes four chapters as following:  Chap 1: Introduction  Chap 2: Literature review  Chap 3: Receivable management situation in Agrexport  Chap 4: Solutions to enhance receivable management in Agrexport -9- Chapter 2: Literature Review 2.1 Concept of receivable 2.1.1 Reason of forming receivable In the course of business, most businesses arises receivables at different levels There are many reasons causing receivables, in which its credit-sale policies are the main ones The purpose of maintaining sale on credit policies is to meet competition, and to increase the sales and profits It is clear that if a company sells goods on credit, it will be in a position to sell more goods than if it insists on immediate cash payment Besides, it raises profits as a result of increase in sales not only in volume, but also because companies charge a higher margin of profit on credit sales as compared to cash sales In order to meet increasing competition, the company may have to grant better credit facilities than those offered by its competitors 2.1.2 Definition and classification of receivables Receivables include all amounts due from third parties Receivable is a general term which refers to all monetary obligations owed to the business by its customers or debtors Based on different criteria, receivable will be classified in different categorizes as following: 2.1.2.1 Based on origination Based on origination, receivables can be broadly classified as trade-receivables and non-trade receivables Trade receivables are those receivables which originate from sales of goods and services by a business to its customers in ordinary course of business There are two main accounts used for trade receivables which are called accounts receivable and notes receivable When customers orally promise to pay, the receivables are recorded as accounts receivable However if the customers' promise is written one, the receivables are recorded as notes receivable Non-trade receivables are the amounts due from third parties for transactions outside its normal course of business of selling goods and services Example of non- ... Solutions to enhance receivable management in Agrexport 51 4.1 Agrexport? ??s perspective of receivable management .51 4.2 Solutions to enhance receivable management 51 4.2.1 Applying cash... situation in Agrexport, and give some solutions and recommendations to enhance receivable management in Agrexport The thesis is to answer following questions:  What is receivable and receivable management? ... above facts in account receivable management in Agrexport, I had taken the research on account receivable management and write the thesis: ? ?Enhance account receivable management in Hanoi Agricultural