Receivables Case Study

Receivables Case Study

Introduction

For new companies or start-up, it is essential for them to invest in business management and accounting. For any successful business account receivable management is crucial element since they are part of company's income and owner need to keep track on over it and to formulate strategies in order to increase them. From this approach, companies are able to identify their best customer and their source. The focus of this paper would be on Commonwealth Pharmaceuticals Receivables Management.

Discussion

Overview of the Case

Kathleen Grogan has decided to start her own business named Commonwealth Pharmaceuticals that will involve in manufacturing nonprescription anti-allergy drug known as SneezeRelief drug. She has been busy in making a business plan that has to be presented at a venture capital conference in New York. Since Kathleen Grog is aware of serious financial difficulty due to poor receivable management within Pharmaceuticals industry. She has spent considerable time over it.

Receivables Management Overview

Receivable management is concern with collection of credit sales. It is importance to control over this as it shows financial health of the company. The concept behind receivable management is to promote net sales and to profit units in order to reach at point where ROI will be lower than cost of funds. Hence, if company does not receive their money from debtors on time, it will impact directly on business operations i.e. company would be going for more debt in order to meet their manufacturing and production cost (Khan & Jain, 2012).

The following in the Receivable management forecast for CommonHealth Pharmaceutical for the first year.

Working for above Result

The above receivable management schedule has been prepared with the main financial objective of the company i.e. company is looking for Contribution margin of 20% with be account receivables will contribute to profit. If any changes take place in the above scenarios, it is planned to reduce production cost and communication between clients will be increased. These would be the main questions that will be asked by venture capitalist. Furthermore, venture capitalist would be asking for the possibilities of this situation and for this Kathleen Grogan should present the formula and it effectiveness on patient, and with this effective it would leads to customers to pay their amount on time (Sale, 2012).

Conclusion

At end of March and June Carrying Costs of Receivables will be $28,284 and $26,904 receptivity. Aging Schedules at end on March state that within less than 30 days, company will able to receive 80.8% of their sales while in June it would be 63.7%. Between 30 to 60 days, it is expected that 19.2% collection will be received along with 36.3% in June. After 60th days, they will not have to collect any amount in both end of March and June. Uncollected Balances Schedule i.e. remaining sales left, February remaining sales i.e. 27.1% will be collected in March and same percentage in June. March remaining collection i.e. 71.5% will be received in March and same for June, Whereas ...