Poor accounts receivable collection at Binh Minh plastics joint stock company

UNIVERSITY OF ECONOMIC HO CHI MINH CITY International School of Business - PHAN THI THANH TRAM POOR ACCOUNTS RECEIVABLE COLLECTION AT BINH MINH PLASTICS JOINT STOCK COMPANY MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City - 2017 UNIVERSITY OF ECONOMIC HO CHI MINH CITY International School of Business - PHAN THI THANH TRAM POOR ACCOUNTS RECEIVABLE COLLECTION AT BINH MINH PLASTICS JOINT STOCK COMPANY MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Prof Pham Phu Quoc Ho Chi Minh City - 2017 SUPERVISOR’S REPORT ON THE FINAL THESIS SUBMITTED FOR DEGREE OF MASTER of BUSINESSADMINISTRATION The final thesis title: POOR ACCOUNTS RECEIVABLE COLLECTION AT BINH MINH PLASTICS JOINT STOCK COMPANY Student Name: PHAN THI THANH TRAM Supervisor: Prof Pham Phu Quoc General comments:  Remarks on the student’s attitude: …………………………………………………………………………… ……………………………………………………………………………  Remarks on the assignment’s academic quality: …………………………………………………………………………… …………………………………………………………………………… Overall assessment:  Meet requirement for submitting  Not meet requirement for submitting Other remarks:  Did the student follow the report schedule?  Yes  No  The Turnitin plagiarism percentage: Supervisor’s signature  Other………………………… CONTENTS EXECUTIVE SUMMARY CHAPTER 1: INTRODUCTION Company background 2 Company symptom CHAPTER 2: PROBLEM IDENTIFICATION 2.1 Potential problems 2.2 The central problem .12 CHAPTER 3: CAUSE VALIDATION 15 3.1 Possible causes .15 3.2 Central cause validation .17 CHAPTER 4: SOLUTIONS .19 4.1 Possible solutions 19 4.2 Suitable solutions 21 CHAPTER 5: ACTION PLANS 23 CHAPTER 6: CONCLUSION 27 APPENDICES 28 REFERENCES 51 LIST OF TABLES Table 1: Days sales outstanding of Binh Minh Plastics Table 2: Analysis the possible solutions of Binh Minh Plastics Table 3: Binh Minh Plastics Joint Stock Company Action Plans LIST OF FIGURES Figure 1.1: Binh Minh Plastics organizational structure Figure 1.2: Days sales outstanding of BMP, NTP and industry Figure 2.1: Aging of BMP’s accounts receivable in 2016 Figure 2.2: Overdue debt ratio of BMP in 2016 Figure 2.3: Initial cause and effect map Figure 3: Final cause and effect map EXECUTIVE SUMMARY Days sales outstandinto measure the average number of days it takes a company to collect what is owed to them after a sale has been completed The quicker DSO reflects the faster speed of capital reinvestment back into company To evaluate the position of company the DSO is compared to other companies or the industry DSO DSO can be calculated by dividing the amount of accounts receivable during a given period by the total value of 47 credit sales during the same period, and multiplying the result by the number of days in the period measured Days sales oustanding = Average accounts receivable Net sales on credit x 365 Or Days sales oustanding = 365 Accounts receivables turnover Appendix 4: Days sales outstanding of Tien Phong Plastic Year Item 2013 Net sales (VND) 2014 2015 2016 2,480,732,747,569 2,997,535,071,629 3,556,141,614,986 4,354,163,055,017 Short-term trade receivables (VND) 454,783,283,480 609,807,952,787 778,130,928,465 1,012,918,824,967 Average Account Receivable(VND) 460,821,825,055 532,295,618,134 693,969,440,626 895,524,876,716 5.38 5.63 5.12 4.86 68 65 71 75 Account Receivable Turnover (Round) Days of sales outstanding Appendix 5: Days sales outstanding of Da Nang Plastic Year Item 2013 Net sales (VND) 2014 2015 2016 78,087,263,348 77,455,172,229 81,614,726,548 67,426,424,805 Short-term trade receivables (VND) 6,769,136,924 7,409,109,858 11,786,801,158 6,913,770,464 Average Account Receivable(VND) 8,625,972,170 7,089,123,391 9,597,955,508 9,350,285,811 Account Receivable Turnover (Round) Days of sales outstanding 9.05 10.93 8.50 7.21 40 33 43 51 Appendix 6: Days sales outstanding of Dong Nai Plastic Year Item 2013 Net sales (VND) 2014 2015 2016 387,020,885,435 594,502,827,695 903,843,201,634 1,454,703,068,206 Short-term trade receivables (VND) 95,324,265,818 174,847,298,934 202,305,779,589 317,193,910,698 Average Account Receivable(VND) 88,764,982,775 135,085,782,376 188,576,539,262 259,749,845,144 4.36 4.40 4.79 5.60 84 83 76 65 Account Receivable Turnover (Round) Days of sales outstanding 48 Appendix 7: Days sales outstanding of BMP, NTP, DPC, DNP, Industry Days sales outstanding 2013 2014 2015 2016 B MP 85 96 110 143 NTP 68 65 71 75 DPC 40 33 43 51 DNP 84 83 76 65 Industry 76 79 86 98 Appendix 8: Aging of BMP’s accounts receivable in 2016 Item -45 days 45 days - months months - months months - 12 months years - years over years - consider as default Accounts receivable 2,451,034,427 203,755,463,917 18,085,645,825 170,179,930,197 5,446,639,702 62,794,400,840 462,713,114,908 Rate 1% 44% 3% 37% 1% 14% 100% Overdue debts 1,455,032,740 8,671,259,554 5,085,437,978 114,308,618,092 795,413,776 62,794,400,840 187,157,798,453 Rate 0.3% 2% 1% 24.5% 0.2% 14% 42% Appendix 9: Balance sheet of BMP 2013-2016 49 Appendix 10: Balance sheet of BMP 2013-2016 50 REFERENCES Brigham, F, Houston J F, Eugene F 6th Edition Fundamentals of Financial Management; Coincise Edition South Western 2009 Pandey, I Financial Management; New Delhi – 110014: Vikas publishing house Pvt.Ltd 2004 Kalunda, E., Nduku, B &Kabiru, J Pharmaceutical Manufacturing Companies in Kenya and Their Credit Risk Management Practices, Research Journal of Finance and Accounting 2012;3(5):159-67 Maria Gorczyńska Accounts Receivable Turnover Ratio The Purpose of Analysis in Terms of Credit Policy Management 2010 Megginson LS, B Introduction to corporate Finance; South Western Publishers 2008 Bojnec S Payments, Insolvency and Finance during Economic Transformation: Slovenia on the Way to European Union Accession Europe-Asia Studies 2002;54(2):277-97 Garcia-Teruel JPM-S, P A Dynamic Approach to Accounts Receivable: a Study of Spanish SMEs European Fianancial Management 2008;16(3):400-21 Zainudin N Tracking the credit collection period of Malaysian small and medium sized enterprises International Business Research 2008;1(1):78–86 Ferrano AaM, K Do firms use the trade credit channel to manage growth Journal of Banking & Finance 2013;37:3035–46 10 Burez J, &Vandenpoel, D Separating financial from commercial customer churn: A modeling step towards resolving the conflict between the sales and credit department Expert Systems With Applications 2008;35(1-2):497-514 11 Richard C Keys to Effective Credit Management 2008 12 Nikolai A and Bazley D 11th Edition Intermediate Accounting; South Western Publishers.Cengage 2010 13 Fleming W and Andrew, I 2nd edition Accounting for Business Management; South Western 1991 51