## Monitoring of Receivables
Monitoring receivables means regularly tracking, evaluating, and managing the status of amounts due from customers to ensure timely collection and minimise bad debts and delays.
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## Key Steps in Monitoring
### Step 1: Average Age of Receivables (Average Collection Period)
$$\text{ACP} = \frac{\text{Average Receivables}}{\text{Daily Credit Sales}}$$
Compare actual ACP against the credit terms offered. If ACP > credit period, collection is lagging.
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### Step 2: Ageing Schedule
A table grouping outstanding receivables by how long they have been due.
| Age Bracket | Amount (₹) | % of Total | Action |
|---|---|---|---|
| 0–30 days | Normal monitoring | ||
| 31–60 days | Send reminder | ||
| 61–90 days | Follow-up call | ||
| > 90 days | Escalate / legal notice |
Purpose of the Ageing Schedule:
- Compare across quarters to check if collection is improving over time.
- Identify slow payers for targeted follow-up action.
- Benchmark against industry/competitors for liquidity comparison.
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### Step 3: Debt Collection Programme
Systematic escalation process:
1. Monitor the status of all receivables regularly.
2. Notify customers as the due date approaches.
3. Email and phone reminders on the due date.
4. Remind customers of legal recourse for overdue accounts; follow the escalation matrix.
5. Legal action on persistently overdue accounts.
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## Collection Expenses vs Bad Debt Losses
There is an inverse (but non-linear) relationship:
- Initial increases in collection spending produce only small reductions in bad debt losses.
- After a threshold, additional spending yields diminishing returns.
- Optimal spend = where marginal collection cost equals marginal reduction in bad debt.