WHAT ARE THE VARIOUS COSTS ASSOCIATED WITH ACCOUNT RECEIVABLE ?
Capital cost; AR blocks the firm’s resources because of the time lag in sale of goods and collection from the customers. The firms has to incur additional funds, which involves cost.
Administrative cost : The firm has to incur additional cost for maintaining AR. Ex :salaries to the staff,cost of conducting investigations and cost of credit worthiness.
Collection cost: Cost incurred for collection dues from the customers. Ex :monitoring state of AR,letters,telephone and legal action.
Defaulting cost: Inspite of all serious efforts some customers may not pay their dues. Hence it is written off.
Capital cost; AR blocks the firm’s resources because of the time lag in sale of goods and collection from the customers. The firms has to incur additional funds, which involves cost.
Administrative cost : The firm has to incur additional cost for maintaining AR. Ex :salaries to the staff,cost of conducting investigations and cost of credit worthiness.
Collection cost: Cost incurred for collection dues from the customers. Ex :monitoring state of AR,letters,telephone and legal action.
Defaulting cost: Inspite of all serious efforts some customers may not pay their dues. Hence it is written off.