## Monitoring and Control of Receivables
Once credit has been granted and a collection policy is in place, a firm must continuously monitor its receivables. Monitoring is the feedback loop that tells management whether the credit standards and collection policy are actually working, and whether liquidity is being protected.
### Why monitor?
- Ensures receivables are managed efficiently and that cash is not locked up unnecessarily.
- Helps maintain liquidity — receivables that are not collected on time starve the business of working capital.
- Identifies slow-paying customers early so corrective action can be taken before debts turn bad.
### Methods for Monitoring Receivables
| Method | What it does |
|---|---|
| Average Age of Receivables | Measures the average collection period — i.e., how long, on average, money stays tied up in debtors. A rising figure signals deteriorating collections. |
| Ageing Schedule | Classifies receivables into age-buckets (e.g., 0–30 days, 31–60 days, 60+ days). Helps predict collection patterns, spot slow payers, and compare current receivables with past data and competitors. |
| Comparison with Past Trends & Other Firms | Tracks receivables over time and against industry peers to recognise whether sales/collection performance is improving or declining. |
### The Ageing Schedule — what it reveals
- Breaks the total debtors figure down by how long each invoice has been outstanding.
- A growing concentration of balances in the older buckets is an early warning of collection problems and potential bad debts.
- Lets the firm benchmark itself against its own history and against competitors.
### Debt Collection Programme
A structured, escalating sequence of actions to recover dues:
1. Monitor receivables — regular tracking of all outstanding payments.
2. Intimation to customers — send reminders before the due date.
3. Follow-ups via email & phone — contact the customer on the due date.
4. Escalation & legal warning — inform overdue customers of possible legal action.
5. Legal action — if dues remain unsettled, initiate legal steps.
The programme must balance efficient collection against good customer relations — being too aggressive can drive away otherwise profitable customers.