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Bbc Pvt. Ltd. and Working Capital Challenges

Autor:   •  September 26, 2017  •  1,434 Words (6 Pages)  •  588 Views

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- Evaluate the company’s’ cash position with focus on its Credit policy towards receivables and payables.

There is a very sharp fall in the cash holding of the company depicted by a negative 18.33% fall from 2009 to 2011. Considering the fact the cash balance shown in the balance sheet is inclusive of the fixed deposit with the bank. This deposit is of no use in working capital management per say, although it generally gets a sustained interest. We have already discussed the policy of the company towards its debtors in the form of trade credit policy and its conservative approach towards the payment of its creditors. This has led to a sharp fall in the creditors who actually in the gamut of working capital management are a source of financing the current assets. So there has been serious problems of the company finding itself in a liquidity crisis is quite evident and obvious. The figures are there for the saying, a negative fall of 64.19%. Though it has liberal trade credit terms it still has been able to boost up sales for that matter has there has been a fall in the debtors as well. There has been a negative fall of 12.13%.

- Is BBC a growing Company? What areas should be improved for future growth?

BBC is not a growing company. It has already been established in the market.

There are some problems faced by BBC, which are as follows:-

- Efforts should be made by the firm to place Order at right time ,with right source to acquire the right quantity at the right price & quality so that

- Continuous supply of raw materials is maintained to facilitate un-interrupted production

- Sufficient stocks of R.M are available during short supply period and anticipated price rise

- Sufficient finished goods inventory is available for smooth sales and efficient customers’ service.

- Minimize carrying cost & Time

- Control investment in inventories at an optimum level.

Guidelines suggested for effective receivables management:-

In order that the credit sales are properly managed it is necessary to outline following guiding factors: i. Optimum Credit Policy ii. Credit time iii. Credit Period iv. Discount policy v. Collection Policy Aim: Timely collection of Receivables and Reduction of Bad debts:- Collection measures undertaken are :- I) monitoring the receivables based on age, maturity, and amounts II) Prioritization and Following up strategically by telephones, e-mails, letters, and even personal visits and contacts. III) Employing Collection/Recovery agent IV) Initiating legal action for recovery of overdue receivables. V) Compromise measures are also under taken Cost of Recovery /Collection: - Cost is more for recovery of Overdue / Bad Debt receivable. Relation of Cost vs. recovery is also not linear/proportional. A trade-off between cost of collection and Cost of Bad debt losses and Reduction of Receivable has to be arrived at.

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