The aim of receivable management tools and techniques is to design policies regarding the granting of borrowing and the collection of receivables with high consideration of costs, risks, and benefits. A trade-off exists between benefits and cost. The objective of receivable management can be clearly understood once the nature of receivable is fully understood.
The sale of goods or services on account carries costs such as:
Administrative cost
Capital cost
borrowing and collection cost
Default cost
The following are a common reasons for the sale of goods and services on borrowing;
To increase the sales volume
To improve profitability level
To increase the industry share
To entice new customers and retain old ones
To become competitive in the industry
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