Summer Internship Report on
“A STUDY ON ACCOUNTS PAYABLE AND
RECEIVABLE MANAGEMENT AT CENTURY PULP
AND PAPER LIMITED”
SUBMITTED TO THE
SCHOOL OF MANAGEMENT STUDIES IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR
THE DEGREE OF
MASTERS OF BUSINESS ADMINISTRATION
Submitted To:
Submitted By:
Mr. Alok Upadhyay
Deepak Chandra Ruwali
Assistant Professor
MBA (III Sem)
Roll No –2155616
Graphic Era Hill University, Bhimtal (Nainital) Uttarakhand (2021-23)
CERTIFICATE
It is certified that the work incorporated in this Project Report “A STUDY
ON ACCOUNTS PAYABLE AND RECEIVABLE MANAGEMENT
AT CENTURY PULP AND PAPER LIMITED” submitted by DEEPAK
CHANDRA RUWALI is her original work and is satisfactorily completed
under my supervision. Material obtained from other sources has been duly
acknowledged in the Project Report.
Date: 13-DECEMBER-2022
Signature:
ACKNOWLEDGEMENT
This report would have been quite impossible without the immense help
and pleasant environment offered at Century Pulp and Paper Limited. I
am deeply grateful to the entire management of “Graphic era hill
university Bhimtal” for giving me an opportunity to work on the practical
aspect of life.
I would like to offer my sincere thanks to Mr. Lokesh Sehgal, Head of
the Finance Department, for giving me the opportunity to do my summer
training at “Century Pulp and Paper Limited”. Mr. Lokesh Sehgal has
patiently listened to my difficulties, tried to sort them out, and given me
valuable suggestions and remarks to make my project a more meaningful
one. His guidance has made me learn a lot about the finance domain. He
constantly motivated me to overcome the hurdles and difficulties in the
project. I am grateful for the time he spent on this project out of his busy
schedule.
Deepak Chandra Ruwali
DECLARATION BY THE STUDENT
This is to declare that I have carried out this project work myself for the
Summer Internship Program of Graphic Era Hill University, Bhimtal. The
work is original, has not been copied from anywhere else, and, has not
been submitted to any other University/Institute for an award of any
degree.
Date: 13-December2022
Place:
Name: Deepak Chandra Ruwali
STUDENT AND SUPERVISOR INTERACTION CERTIFICATE
The certificate verifies that the student has visited the supervisor and that
the corrections indicated in the report are modified and verified by the
student through the supervisor. The details of the visit, remarks, and
modifications are mentioned below:
Interaction
Number
Date
Signed by:
Mr. Alok Upadhayay
Assistant professor
%age
Change Changes Signature
report
suggested Name
Of
undertaken by the
mentor
on the date mentor
INDEX
S. No.
1
2
Contents
INTRODUCTION
INDUSTRY PROFILE
3
COMPANY PROFILE
4
 Overview
 Pulp and Paper Industry In India







Overview
History of Century Pulp And Paper Limited
Mission Statement
Vision Statement
Global Presence
Awards
Core Values
Products
Financial Highlights
Major Competitors
List of Departments at Century Pulp and Paper




RESEARCH DESIGN
 Research Methodology
 Objectives Of Research Methodology
 Project Title
 Statement Of Problem
 Research Methodology
 Objectives Of The Study
 Limitations Of The Study
5
6
 Sources Of Data
ACCOUNTS PAYABLE MANAGEMENT
 Overview
 Determinants Of Accounts Payables (Trade
Credit)
 Supply Of Trade Credit
 Creditworthiness And Access To Capital
Markets
 Growth
 Asset Maturity
 Creditors/Accounts Payable Turnover Ratio
ACCOUNTS RECEIVABLES MANAGEMENT
 Cost Maintaining Receivables
 Credit Policies
 Analysis
INTRODUCTION TO TOPIC
Finance is one of the major elements, which activates the overall growth
of the economy. Finance is the lifeblood of economic activity. A well-knit
financial system directly contributes to the growth of the economy. An
efficient financial system calls for the effective performance of financial
institutions,
financial
instruments,
and
financial
markets.
The funds in business are obtained from the issue of shares, the issue of
debentures, and another long-term arrangements from the operations of
the business. A high part of generated funds are receivables by customers
remaining part of the generated funds is used for the day-to-day operations
of the business i.e., to pay wages, creditors for raw material purchases,
and overhead expenses, for the production process. This makes possible
the stocking of finished goods by whose sales either accounts receivable
are created or cash is received. In this process, profit is generated. A part
of profit some funds are used to pay taxes, interests, and dividends while
the remaining part is plowed back into the business. This cycle goes on
constantly
throughout
the
life
of
the
business.
Companies track Accounts Receivable (A/R) and Payable (A/P) to
manage their operating cash flow. Basic A/R and A/P reports include
tracking the value of accounts that are 30, 60, or 90 days past due,
monitoring the distribution of receivables across customers, and
reviewing payments trend for vendors across periods. The more
sophisticated analysis includes predicting potential bad debts, forecasting
cash outlays, and tracking invoices and journal entries to the
corresponding accounting representative.
Businesses adding business intelligence to their A/P and A/R functions
are benefitting from more efficient cash management. The Inventory
accounts receivable, and accounts payable are the most important
positions for an effective long run of a business working capital
management. The prepayments received from customers and
prepayments paid to suppliers may also play an important role in the
company’s cash flow. Excess cash and nonoperational items may be
excluded from the calculation for better comparison. As a measure for
effective financial performance, therefore, another more operational
metric definition applies:
(OPERATIVE) NET WORKING CAPITAL =
INVENTORIES + RECEIVABLES – PAYABLES –
ADVANCES RECEIVED + ADVANCES MADE.
Where:
• Inventory is raw materials plus work in progress (WIP) plus finished
goods;
• Receivables are trade receivables;
• Payables are non-interest-bearing trade payables;
• Advances received are prepayments received from customers;
• Advances made are prepayments paid to suppliers.
INDUSTRY PROFILE
OVERVIEW
Companies that use wood as a raw material to manufacture pulp, paper,
paperboard, and other cellulose-based goods make up the pulp and paper
sector. The pulp is put into a paper machine, which forms it into a paper
web and removes the water by pressing and drying it. Cellulosic fibers as
well as other plant resources are used to make pulp and paper. Some
synthetic fibers may be utilized to give the completed product particular
qualities. In the beginning, the paper industry relied heavily on wood as a
raw material. However, as public awareness and restrictions on tree
cutting have grown, the attention has switched to waste paper and
agricultural residue. Wood fibers are used to make paper, but rags, flax,
cotton linters, and bagasse (sugar cane wastes) are also utilized. Used
paper is recycled as well, and after being purified and sometimes deinked,
it is frequently merged with virgin fibers and transformed into paper.
Products derived from cellulose, such as cellulose acetate, rayon, and
cellulose esters, are used in packaging films and explosives. This industry,
which produces items like office and catalog paper, glossy paper, tissue,
and paper-based packaging, consumes 13-15 percent of overall wood
usage and consumes 33-40 percent of all industrial wood traded
internationally.
PULP AND PAPER INDUSTRY IN INDIA
India ranks 15th in the world in terms of paper production. The Indian
Paper Industry produces approximately 1.6 percent of the total worldwide
paper and paperboard supply. The Indian Paper Industry dates back to
1812 when the very first paper mill was established in Behranpur Since
then, the industry has expanded both vertically and horizontally over time.
Although the industry began with softwood and other grasses,
technological advancements have allowed it to treat a wide range of raw
materials over time. According to the raw materials used, the Indian paper
industry can be split into three categories: wood-based, agro-based, and
recycled fiber or waste paper-based. In India now, there are over 800
paper mills In India, numerous varieties of paper are produced, including
those used in printing and packaging, writing, and a few specialty papers.
In India, 40% of total paper production comes from hardwood and
bamboo fiber, 30% from agricultural waste, and 30% from recycled
materials. The Indian pulp and paper industry has agroforestry roots and
strong backward ties with the rural community, from whom wood, a vital
raw material, is acquired. The cost of raw materials accounts for 45 to 50
percent of revenue. The total amount of paper utilized for publications and
newspapers. A total of 1.2 million tons of newsprint is produced, with the
remainder purchased from other suppliers. This implies that around 40%
of newsprint is imported from outside the country, India imports
approximately 2 million tons of pulp wood and waste paper for
newspapers. However, India is also exporting roughly 1-2 million tons of
paper each year, and the figure is rising. Filter paper, tea bags, tissue
paper, and other paper-based products are becoming increasingly popular
in Indian markets, indicating that the paper sector in India has a bright
future ahead of it. The main hurdles to be overcome include bad market
circumstances and outdated technology, a lack of ability to achieve
economies of scale, and a shortage of competent people.
Enabling a holistic shift and general management that can embrace higher
criteria for organizational efficiency is what can drive the paper industry
into a desirable future.
COMPANY PROFILE
OVERVIEW
Century Textile and Industries Ltd. owns Century Pulp & Paper and is a
member of B.K. Birla group of companies. The chairman of Century Pulp
and Paper is Shri Basant Kumar Birla. The chief executive officer (CEO)
of the company is Mr. Vijay Kaul. Century Pulp & Paper is located in
Lalkuan, Uttarakhand, amid the Himalayan foothills. It began operations
in 1984 with a capacity of 20,000 TPA for both writing and printing
papers and Rayon Grade Pulp, with a capacity of 1450 MT per day, it is
India's biggest producer of paper, board, tissue, and pulp operating from
a single location. It has been a prominent player in this industry's home
and international markets. The firm includes service centers and sales
offices all around the country, as well as international agents.
The enterprise is credited with being the first to bring industrialization to
Lalkuan, a small village in the Nainital District. Since then, the township
has been dubbed "Ghanshyamdham," after the great thinker and backbone
of Indian industry. Spread over in an area of about 400 acres of land, the
company provides employment to an approx. of 3000 people.
HISTORY OF CENTRUY PULP AND PAPER
LIMITED
Century Pulp & Paper (CPP), a unit of the B K Birla Group of Companies,
is one of the leading integrated Pulp and Paper companies in the country.
Established in the year 1984 at Lalkuan, a township near the foothills of
the Himalayas.
“We are excited to have the second Valmet tissue line up and running in
our Lalkuan mill in India. In Century Pulp and Paper, we constantly
develop the mill with the latest technology to ensure premium tissue
quality to our customers and at the same time reduce the environmental
impact. We are the first company in India to install a tissue line equipped
with the Advantage ViscoNip press technology. Valmet’s flexible and
result-oriented approach has also been an important part to achieve a
successful start-up” said Mr. J.P. Narain, CEO, Century Pulp and
Paper when the company started up their second Valmet Advantage DCT
tissue machine at the mill in Lalkuan, India recently.
"We congratulate Century Pulp & Paper on the successful startup of their
new Valmet Advantage Tissue Machine”, says Christine Jung, Valmet
MC Project Manager.
“We appreciate the excellent cooperation between Valmet- and Century
teams who jointly achieved this important step forward", says Varun
Jain, Director of India Region, Valmet.
”This tissue machine startup constitutes an important landmark in the
region, further strengthening Century Pulp and Paper as a leading tissue
manufacturer. We are proud of our close and successful cooperation with
Century, which requires the highest performance and world-leading tissue
technologies, says Tomas Karlsson, Sales Director, Valmet.
MISSION STATEMENT
"We will continuously strive to implement the critical initiatives required
to achieve our vision. In doing this, we will deliver operational excellence
through a relentless focus on ensuring Environmental compliance, and
consistently innovating to provide, customer delight. We strive to reflect
the highest ethical standards in our relationships with our customers,
dealers & distributors, vendors, employees, and shareholders. All of our
long-term strategies and short-term actions will be molded by a set of core
values shared by every employee"
VISION STATEMENT
"To be the most preferred customer choice by consistently delivering
high-quality paper products using sustainable green technology, adding to
shareholder value by 2026 while making it one of the best places to work
for our employees".
GLOBAL PRESENCE
AWARDS
CORE VALUES
 Integrity - Business is to be conducted fairly, with honesty &
transparency following the highest standards of professionalism in
doing so.
 Speed of Actions - The business shall operate with a sense of
ownership and urgency to deliver the commitments to both internal
as well as external stakeholders.
 Team Work - Working cooperatively, providing support to one
another respecting one another's views, and building strong
relationships are highly encouraged.
 Openness & Trust - Being open, trustworthy & honest in all dealings
and showing respect, humanity, and compassion for colleagues and
customers.
 Passion - Value commitment, ensure the best customer service.
PRODUCTS
The company manufactures the following products:
FINANCIAL HIGHLIGHTS
MAJOR COMPETITORS









ITC PSPD
Ballarpur Industries Limited
JK Paper Limited
Tamilnadu Newsprint & Papers Limited
The Andhra Pradesh Paper Mills Limited
West Coast Paper Mills Limited
Abhishek Industries Limited
Orient Paper & Industries Limited
Emami Paper Mills Limited




Rainbow Papers Limited
Yash Papers Limited
Sidharth Papers Limited
Murli Industries Limited
List of Departments at Century Pulp and Paper
• Accounts
• Purchase
• Store
• Raw Material
• Mechanical Engineering
• Civil Engineering
• Electrical Engineering
• Instrumentation
• Fire & Safety
• Water Treatment Plant
• Recovery Process
• Human Resources
• Sales
• Sales Retail
• Administration
• Drawing Office
RESEARCH DESIGN
A research design is a framework or plan for a study that is used as a guide
in collecting and analyzing the data collected. It is the blueprint that is
followed in completing the study. The basic objective of the research
cannot be attained without a proper research design. It specifies the
methods and procedures for acquiring the information needed to conduct
the research effectively. It is the overall operational pattern of the project
that stipulates what information needs to be collected, from which source,
and by what methods.
PROJECT TITLE
The present project undertaken by me bears the title,
“A STUDY ON ACCOUNTS PAYABLE AND RECEIVABLES
MANAGEMENT AT CENTURY PULP AND PAPER LIMITED,
LALKUAN”.
STATEMENT OF PROBLEM
Century Pulp And Paper Limited are one of the huge production and
service player in the Public Sector Unit of India. For any industry, finance
is the lifeblood of its operations and its day-to-day activities. The funds
for the operations mainly raised the sales of the products and services.
When there is a delay in the receivables for the credit sales from the
customers, there will be a big hit for the working capital and the
operations.
The importance of receivables and payable management for two reasons.
1. Credit sales.2. Credit Purchases.
In this study, an attempt has been made to analyze the size and
composition of working capital and whether such an investment has
increased or declined over a period. Proper management of receivables
and payables helps an organization to flow smoothly.
RESEARCH METHODOLOGY
The research methodology used in the study is descriptive in nature as the
analysis is based on the previous 5 years’ data available from the balance
sheets and thus interpretations are made.
OBJECTIVES OF THE STUDY
To know how the company manages its credit sales for the customers.
 To know how the company reduces the pressure of payments to
suppliers.
 To know the cash management for the company’s day-to-day activities
by receivables and for the payments to the suppliers.
 To know how the relationship is maintained with the customers as well
as supplier receipts as well as payments.
LIMITATIONS OF THE STUDY
 The study was purely based on the information provided by the
company, they may be biased.
 The analytical study is done only with respect to Century Pulp and
Paper Limited
 The time constraint for the study is less.
SOURCES OF DATA
1. SECONDARY DATA
Secondary data is data that is developed for some purpose other than
helping to solve the problem at hand. The data collection method in
this project is off by using secondary sources of data such as the
company’s annual reports as a Balance sheet, Profit and Loss
account, Company’s website, etc. Secondary data is useful as they
give clear information about the company’s activities, its financial
position, etc.
Some of the Secondary
 Encyclopedias.
 Textbooks.
 Magazines.
 Newspapers.
 Annual reports.
Data
sources
are
as
below,
ACCOUNTS PAYABLE MANAGEMENT
Expense administration is usually closely related to accounts payable, and
sometimes those functions are performed by the same employee. The
expense the administrator verifies employees' [expense report] not
confirming that receipts exist to support the airline, ground transport,
meals and entertainment, telephone, hotel, and other expenses.
The financial documentation is necessary for tax purposes and to prevent
reimbursement of inappropriate or erroneous expenses. Airline expenses
are, perhaps, the most prone to fraud because of the high cost of air travel
and the confusing nature of airline-related documentation, which can
consist of an array of reservations, receipts, and actual tickets. Not all
employees are allowed to submit expense reports.
The most common employees are salesmen. Some organizations limit the
amount that an employee can expense. Organizations will also set the rate
for mileage for car expenses. Expense reporting should be completed in
the same period they were used. If the expense was not processed in the
same period it was used in, then the employee who processes the expense
reports (usually accounts payable) should create a journal entry for the
amount to be recorded in the proper period.
The expense reports are treated the same as any other expense for an
organization and that is why they should be recorded in their proper
periods. Expense reports are typically approved by the management
personnel of the same department as the employee claiming the expenses
and getting reimbursed for those amounts.
In accounts payable, a simple mistake can cause a large overpayment. A
common example involves duplicate invoices. An invoice may be
temporarily misplaced or still in the approval status when the vendor calls
to inquire into its payment status. After the A/P staff member looks it up
and finds it has not been paid, the vendor sends a duplicate invoice;
meanwhile, the original invoice shows up and gets paid. Then the
duplicate invoice arrives and inadvertently gets paid as well, perhaps
under a slightly different invoice number.
DETERMINANTS OF ACCOUNTS PAYABLES
(TRADE CREDIT)
Firms generally make purchases from other firms on credit, recording the
debt as an account payable. Accounts payable, or trade credit, is the
largest single category of operating current liabilities, representing about
40% of the current liabilities of the average US nonfinancial corporation.
The percentage is somewhat larger for smaller firms. Because small
companies often do not qualify for financing from other sources, they rely
especially heavily on trade credit. The outcome of proposed determinants
on which the accounts payable is regressed. This model uses the same
variables (including the control variables) used for the accounts receivable
model. Besides these variables, two more variables are added to this
model. First, to determine the asset maturity RATIO OF CURRENT
ASSETS (INVENTORIES AND FINANCIAL ASSETS) TO TOTAL
ASSETS is used. Second, to assess the supply of trade credit
PURCHASES TO TOTAL ASSETS are used.
SUPPLY OF TRADE CREDIT
The annual purchases as a proxy for the supply of trade credit making an
assumption that all purchases are on credit. They believe that this
assumption is not very restrictive, as large companies normally do not pay
their purchases in cash. This study also uses the purchases as a proxy to
supply trade credit and considers the same assumption. The result relating
to the supply of trade credit is the same as expected: a significant and
positive coefficient is obtained (p= 0.0005) which indicates that an
increase in the supply of trade credit increases the level of its use.
CREDITWORTHINESS
CAPITAL MARKETS
AND
ACCESS
TO
The result concerning asset size is quite significant in explaining the
accounts payable level. The coefficient is positive and the significance
level is also quite high (p= 0.0000). This positive sign shows that
financing of larger firms is comprised of more trade credit than smaller
firms. This may be due to their greater access to capital markets.
GROWTH
Theory suggests that healthier investment opportunities are available to
the firms which are growing and these firms require increased financing
for these new investment opportunities. It is assumed that trade credit may
be used as a fractional source of financing for these growing firms.
However, the opposite is found in empirical results. Sales growth is found
to have a negative but significant coefficient (p= 0. 0015) which implies
that the faster a firm is growing the less it uses trade credit in its financing.
Hence, firms growing slowly or not growing at all utilize the trade credit
most.
ASSET MATURITY
In explaining the level of accounts payable the asset maturity, measured
by the ratio of current assets to the total assets is found to have a greater
proportion with a significant positive variable (p= 0002). This finding is
consistent with the view that firm’s assets are financed with funds having
the same maturities. This is carried out to plan repayments of the funding
to match the decline in the value of the firm’s assets. As a result, shortterm assets are usually financed with short-term debt just as accounts
payable, while long-term assets are financed with long-term debt or
equity.
CREDITORS / ACCOUNTS PAYABLE TURNOVER
RATIO
This ratio is similar to the debtor’s turnover ratio. It compares creditors
with the total credit purchases.
It signifies the credit period enjoyed by the firm in paying creditors.
Accounts payable include both sundry creditors and bills payable. Same
to the debtor’s turnover ratio, the creditor’s turnover ratio can be
calculated in two forms, creditors’ turnover ratio and average payment
period.
The average payment period ratio represents the number of days the firm
has to pay its creditors. A high credit turnover ratio or a lower credit
period ratio signifies that the creditors are being paid promptly. This
situation enhances the creditworthiness of the company. However, a very
favorable ratio to this effect also shows that the business is not taking full
advantage of credit facilities allowed by the creditors.
Table No.5.1
1. Average trade creditors =
Opening creditors+Closing creditors
2
(Rs in
lakhs)
Years
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
Opening
creditors
9162.27
12536.57
5618.36
11236.92
29496.49
Closing
creditors
12536.57
5618.36
11236.49
29496.49
12112.87
Average trade
creditors
10849.42
9077.46
8427.64
20366.70
20804.68
ANALYSIS
From the above table the average trade creditors for the FY 2017-18 was
10849.42, in 2018-19 it is 9077.46 and in the year 2019-20 it was reduced
to 8427.64 and in 2020-21 it is 20366.70, and 20804.68 in the year 202122.
GRAPH 5.1
Average Trade Creditor
25000
20000
15000
10000
5000
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INTERPRETATION
The above graph shows that the average trade creditors are increasing in
the FY 2020-21 and 2021-22, it indicates that the company is making use
of the credit facility.
Table 5.2
2. Credit turnover ratio =
Years
2017-18
2018-19
2019-20
2020-21
2021-22
Net credit purchase
Average trade creditors
Credit
Purchase
29513.96
26227.43
32663.15
62871.67
74876.11
Average
creditors
10849.42
9077.46
8427.64
20366.70
20804.68
(Rs in lakhs)
Creditors
turnover ratio
2.72
2.88
3.87
3.08
3.59
ANALYSIS
From the above table the creditor turnover ratio in 2017-18 it was 2.72
times, in 2018-19 it is 2.88 times and in the year 2019-20 it is issued
3.87 times and in 2020-21 it is 3.08 times and 3.59 in the year 202122.
Graph 5.2
Credit Turnover Ratio
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INFERENCE
The low creditor’s turnover ratio for the FY 2017-18, 2018-19, and
2019-20 indicated that payables are not paid on time. While a high ratio
of 3.87 in the FY 2019-20 and 3.59 in the FY 2020-21 indicated better
payment than in other financial years. This shows the company is
maintaining ideal payment policies
Table 5.3
3. Average net credit purchase per day =
Average net credit purchase per day
No.of days in the year
(Rs
in lakhs)
Years
2017-18
2018-19
2019-20
2020-21
2021-22
Credit
Purchase
29513.96
26227.43
32663.15
62871.67
74876.11
No. of days in
the years
365
365
365
365
365
Credit purchase
per day
80.86
71.85
89.48
172.25
210.61
ANALYSIS
From the above table the credit purchased per day in 2017-18 was 80.8,
in 2018-19 it is 71.85and in the year 2019-20 it was issued 89.48 and
in 2020-21 it is 172.25 and 210.61 in the year 2021-22.
Graph 5.3
Average Net Credit Purchase
250
200
150
100
50
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INTERPRETATION
The above graph shows that the average credit purchase is increasing year
by year. To maintain good trade practices with the vendors/suppliers the
company should restructure the receivable policies for the ideal payments.
Table 5.4
4. Creditors payment period =
Years
2017-18
2018-19
2019-20
2020-21
2021-22
No.of days in the year
Creditors turnover ratio
No. of days in
years
365
365
365
365
365
Creditors
turnover ratio
2.72
2.88
3.87
3.08
3.59
Creditor
payment period
134
126
94
118
102
ANALYSIS
From the above table the creditor payment period in 2017-18 was 134
days, in 2018-19 it is 126 days, and in the year 2019-20 it was issued
94 days, and in 2020-21 it is 118 days, and 102 days in the year 202122.
Graph 5.4
Creditors Payment Period
160
140
120
100
80
60
40
20
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INTERPRETATION
The calculation of the debt payment period shows the FY of 2018, 2019,
and 2020 are almost the same. But in the years 2020 and 2022, it shows
less creditor payment period. On average, the company took around 115
days for the payments to the suppliers.
ACCOUNTS RECEIVABLES MANAGEMENT
OVERVIEW
Accounts receivable represents money owed by entities to the firm on the
sale of products or services on credit. In most business entities, accounts
receivable are typically executed by generating an invoice and either
mailing or electronically delivering it to the customer, who, in turn, must
pay it within an established timeframe, called credit terms or payment
terms.
The accounts receivable team is in charge of receiving funds on behalf of
a company and applying it toward their current pending balances.
Collections and cashiering teams are part of the accounts receivable
department. While the collections Department seeks the debtor, the
cashiering team applies the monies received.
Outstanding advances are part of accounts receivable if a company gets
an order from its customers with payment terms agreed upon in advance.
Since billing is done to claim the advances several times, this area of
collectible is not reflected in accounts receivables.
Ideally, since advance payment occurs within a mutually agreed-upon
term, it is the responsibility of the accounts department to periodically
take out the statement showing advanced collectible and should be
provided to sales & marketing for collection of advances. The payment of
accounts receivable can be protected either by a letter of credit or by Trade
Credit Insurance.
Companies can use their accounts receivable as collateral when obtaining
a loan (asset-based lending). They may also sell them through factoring
or on an exchange. Pools or portfolios of accounts receivable can be sold
in capital markets through securitization.
COST MAINTAINING RECEIVABLES
The major categories of costs associated with the extension of credit and
accounts receivables are:
1. Collection cost,
2. Capital cost,
3. Delinquency cost,
4. Default
1. Collection cost
Collection costs are administrative costs incurred in collecting the
receivables from the customers to whom credit sales have been
made.
2. Capitol Cost
The increased level of accounts receivable is an investment in assets.
They have to be financed thereby involving a cost to meet the firm’s
own obligation while waiting for payment from its customers.
3. Delinquency Cost
This cost arises out of the failure of the customers to meet their
obligations when payment on credit sales becomes due after the
expiry of the credit period.
4. Default Cost
The firm may be unable to recover the over dues because of the
customers' inability. Such debts are treated as bad debts and have to
be written off as they cannot be realized.
CREDIT POLICIES
The accounts receivable management should aim at a trade-off between
profit (benefit) and risk (cost). That is to say, the decision to commit funds
to receivables will be based on a comparison of the benefits and costs
involved while determining the optimum level of receivables. The credit
policy of a firm provides a framework to determine
 Whether or not to extend credit to a customer?
 How much credit to extend?
The credit policy decision of a firm has the following dimensions
1.
2.
3.
4.
Credit Standards
Credit Analysis
Credit terms
Collection Policy and Procedure
1. Credit Standards
The term credit standards represent the basic criteria for the
extension of credit to customers. The quantitative basis of
establishing credit standards is factors such as credit ratings, credit
references, average payment period, and certain financial ratios. The
overall standards are divided into (a. tight or restrictive and b. liberal
or non-restrictive). Credit standards have implications on collection
costs, investment in receivables, bad debt expenses, and sales
volume.
2. Credit Analysis
Besides establishing credit standards, a firm should develop
procedures for evaluating credit applicants. Two basic steps are
involved in the credit analysis and investigation process.
 Analysis of credit information on the basis of the creditworthiness
of the customer and the quantum of credit to be granted
 Obtaining credit information through internal sources such as
employees, previous records, etc., and external sources such as
published financial statements, bank, and trade references, and
credit bureau reports
3. Credit Terms
The management must now determine the terms and conditions on
which trade credit will be made available. The stipulations under
which goods are sold on credit are referred to as credit terms. Credit
terms have three components
 Credit period, in terms of the duration of time for which trade credit
is extended-during this period the overdue amount must be paid by
the customer.
 Cash discount, if any, which the customer can take advantage of,
i.e., the overdue amount will be reduced by this amount.
 The cash discount period refers to the duration during which the
discount can be availed of. It is usually written in abbreviations, e.g.,
‘2/10 net 30’. Here ‘2’ signifies the rate of cash discount (2%), ‘10’
represents time duration (10 days) and ‘30’ means the maximum
period for which credit is available is 30 days.
4. Collection Policy and Procedure
They refer to the procedures followed to collect accounts receivable
when, after the expiry of the credit period they become due. These
policies
cover
two
aspects.
 Degree of collection effort- it can be either a strict collection effort
or a lenient one.
 Type of collection effort includes letters, reminders, telephone
calls, personal visits, the help of collection agencies, or finally legal
action.
Accounts receivable turnover is usually calculated on annual basis;
however, for the purpose of creating trends, it is more meaningful to
calculate it on a monthly or quarterly basis.
ANALYSIS
Accounts receivable turnover measures the efficiency of a business in
collecting its credit sales. Generally a high value of accounts receivable
turnover is favorable and a lower figure may indicate inefficiency in
collecting outstanding sales. An increase in accounts receivable turnover
overtime generally indicates improvement in the process of cash
collection on credit sales. However, a normal level of receivables turnover
is different for different industries. Also, very high values of this ratio may
not be favorable, if achieved by extremely strict credit terms since such
policies may repel potential buyers.
TABLE 6.1
1. Average trade debtor =
Years
2017-18
2018-19
2019-20
2020-21
2021-22
Opening debtors+Closing debtors
Opening
debtors
6603.94
7218.33
6759.9
13685.24
30668.10
2
Closing
Debtors
7218.33
6759.9
13685.24
30668.10
36530.77
(Rs in lakhs)
Average
Debtors
6911.13
6989.11
10222.57
22176.67
33599.43
ANALYSIS
From the above table the average trade debtors in 2017-18 was
6911.13, in 2018-19 it is 6989.11, and in the year 2019-20 it was issued
10222.57, and in 2020-21 it is 22176.67, and 33599.43 in the year
2021-22.33
Graph 6.1
Average Trade Debtors
40000
35000
30000
25000
20000
15000
10000
5000
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INTERPRETATION
The above graph shows that the average trade debtors are increasing in
nature it indicates that the company is making more credit sales so that
the company is making more profit.
TABLE 6.2
Net credit sales
2. Debtors turnover ratio = Average debtors (Rs in lakhs)
Years
Credit sales
Avg. debtors
2017-18
2018-19
2019-20
2020-21
2021-22
52131.63
62852.72
65392.79
69284.68
103528.17
6911.13
6989.11
10222.57
22176.67
33599.43
Debtors
turnover ratio
7.5
9.56
6.39
3.12
3.08
ANALYSIS
From the above table the Debtors turnover ratio in 2017-18 was 7.5
times, in 2018-19 it increased to 9.56, and in the year 2019-20 it was
issued 6.39, and in 2020-21 it is 3.12, and 3.08 in the year 2021-22.
Graph 6.2
Average Trade Debtors
12
10
8
6
4
2
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INTERPRETATION
From the above graph, the debtor’s turnover ratio is high in the FY 201718 and 2018-19 i.e. 7.5 and 9.56, a higher ratio will indicate better
management of receivables. Thereafter it shows a decreasing trend for FY
2020 and 2021.
TABLE 6.3
1. Debtors collection period =
Years
2017-18
2018-19
2019-20
2020-21
2021-22
No.of days in the year
Debtors turnover ratio
No. of days in
the year
365
365
365
365
365
Debtors
Debt collection
turnover ratio
period
7.5
49
9.56
38
6.39
57
3.12
116
3.08
118
ANALYSIS
From the above table the Debtors collection period in 2017-18 was 49
days, in 2018-19 it is 38 days, and in the year 2019-20 it is 57 days,
and in 2020-21 it was increased to 116 days, and 118 days in the year
2021-22.
Graph 6.3
Debt Collection Period
140
120
100
80
60
40
20
0
2017-2018
2018-2019
2019-2020
2020-2021
2021-2022
INTERPRETATION
From the above graph, the debtor collection period shows very high in FY
2021-22 i.e. 118 days, and in FY 2018-19 shows less DCP i.e., 38. So the
company should take care of its receivables.
CONCLUSION
Account receivable and payable management of the organization is very
important to sustain balance management. Recording of transactions is
always advisable to be done by software than manually. The daily star
uses software to handle transaction records, different entry ports are used
to record transactions. Verification of each transaction record plays an
important pan as each transaction have an effect on the different financial
report. Employees from every department who are engaged with software
recording need to know the effect of transactions on other reports.
Cooperation between employees can help to improve better management
of receivables and payables.
REFERENCES
1. https://www.centurypaperindia.com/
2. https://www.ambitionbox.com/overview/centurypulp-and-paper-overview
3. https://www.tradeindia.com/century-pulp-paper9876059/
4. https://www.investopedia.com/terms/a/accountspaya
ble.asp
5. https://economictimes.indiatimes.com/definition/acco
unts-receivable