Credit Manager Use Accounting Receivables to Improve

¶ … Credit Manager Use Accounting Receivables to Improve Cash Flow?

A credit manager can improve his cash flow by properly managing his accounts receivables. Since account receivables are guaranteed income that is to be received by a company, they must be recorded, analyzed, and balanced, to ensure that every cash flow, whether outgoing or incoming, conforms the cash management plan.

One strategy in using accounts receivables to improve cash flow is by giving the customers with trade credits, such as payment terms and discounts, that are beneficial to them. In such way, the customers will be happy with the company's service and this can provide the possibility of having an increase in the number of customers as well as better sales opportunities (Commerce Bank Online, 2004).

Monitoring the performance of accounts receivables help in finding whether the current credit system of the company is effective. Commerce Bank Online suggests the following evaluation measures.

Receivables Turnover Ratio which measures the frequency of receivables paid by the customer. The more turnover indicates good credit performance of the company.

Average Number of Days of Receivable Outstanding which measures how long it takes to collect a receivable.

In general, religiously analyzing and monitoring the flow of accounts receivables, how they play as benefit or disadvantage to the company is the most important technique that a credit manager can do to improve cash.

What is the Difference Between Forecasting and Budgeting?

Budgeting and forecasting are two techniques when managing cash and other assets. However, these two techniques differ in the way that they are used.

Forecasting is the process of predicting, estimating, and projecting the cash flow that will be taken for a period of time. The amount involved in forecasting is not exactly identified. However, budgeting is the process of making a track record of the cash flow to ensure that the flow of money, specifically the spending, does not exceed the identified budget. These two processes differ in the way that the cash is involved. In forecasting, the amount of cash is not exactly identified hence the amount can be extended or lessened. While in budgeting, the amount of cash involved is exact and all cash activities must be maintained to stay within that amount.