Beruflich Dokumente
Kultur Dokumente
ON
ACCOUNT RECEIVABLE MANAGEMENT
TATA STEEL
Prepared by
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Date: 21-05-202
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EXECUTIVE SUMMARY
The project deals in account receivable management at Tata Steel. Receivable management
is one of the most important aspects of the organization, as it deals with the management of the
outstanding. The profit of the company mainly depends on the accounts receivables. Therefore it
needs a careful analysis and proper management.
Debtors occupy an important position in the structure of current assets of a firm. They are the
outcome of rapid growth of trade credit granted by the firms to their customers. Trade credit is
the most prominent force of modern business. It is considered as a marketing tool acting as a
bridge for the movement of goods through production and distribution stages to customers.
Till few years back, Tata Steel had a very strict policy of selling against advance payments. That
was an era of controlled economy. However, with an increasing domestic and international
competition, Tata Steel could no longer afford this policy, in order to maintain its premium
position. Further in order to capture a greater amount of market share, it was compelled to go by
the industry norms and thus it ushered into the new era of credit sales. This resulted in credit
sales going up significantly. A credit limit was sanctioned to every customer. The customers
were required to pay the outstanding amount on the due date.
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CONTENTS
PAGE NO.
COMPANY PROFILE
02
TREND OF SALES
03
TREND OF DEBTORS
04
05
06
07
07-08
08-10
11-12
DEBTORS
UNDERSTANDING THE DEBTORS PROCESS SYSTEM
13
14
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15-16
INTRODUCTION
Accounts receivable is an accounting transaction which deals with the billing of customer who
owes money to a person, company or organization for goods and services that has been provided
to the customers. In most business entities this is typically done by generating an invoice and
mailing or electronically delivering it to the customer, who in turn must pay it within an
established timeframe called credit or payment terms.
The term receivable management is defined as debt owed to the firm by customer arising
from the sale of goods/ services in the ordinary course of business. The receivable represents
an important component of the current assets of the firm. Receivables may be known as accounts
receivables, trade creditors or customer receivable. When a firm its products / services and does
not receive cash for it immediately, the firm has said to be granted trade credit to the customers.
Trade credit thus creates receivable / book debts, which the firm is expected to collect in near
future. Accounts receivable are thus amounts due from customers, which bear no interest in
essence, a company is providing no cost financing to the customer to encourage the purchase of
the companys product/services.
Objective of receivable management To promote sales and profit until that point is reached
where the return on investment in further funding of receivable is less than the cost of funds
raised to finance that additional credit(i.e. cost of capital)
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COMPANY PROFILE
Backed by 100 glorious years of experience in steel making, Tata Steel is the worlds 6th largest
steel company with an existing annual crude steel production capacity of 30 Million Tons Per
Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia and is now the
world`s second most geographically diversified steel producer and a Fortune 500 Company Tata
Steel has a balanced global presence in over 50 developed European and fast growing Asian
markets, with manufacturing units in 26 countries.
Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA
which is slated to increase to 10 MTPA by 2010. The Company also has proposed three
Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with
additional capacity of 23 MTPA and a Greenfield project in Vietnam. Tata Steel, through its
joint venture with Tata BlueScope Steel Limited, has also entered the steel building and
construction applications market.
The iron ore mines and collieries in India give the Company a distinct advantage in raw material
sourcing. Tata Steel is also striving towards raw materials security through joint ventures in
Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel has signed
an agreement with Steel Authority of India Limited to establish a 50:50 joint venture company
for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Capital
Corporation, Canada for iron ore mining.
Exploration of opportunities in titanium dioxide business in Tamil Nadu, Ferro-chrome plant in
South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth and
Globalisation objective of Tata Steel.
Tata Steels vision is to be the global steel industry benchmark for Value Creation and
Corporate Citizenship.
Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded
the Deming Application Prize 2008 for excellence in Total Quality Management.
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TREND OF SALES
YEARS
SALES
FY2004FY 2003-0405
15876.8
11920.96 7
FY
2005-06
17144.2
2
FY
2006-07
19762.5
7
FY
2007-08
22191.8
Analysis
STEEL
TUBES
FERRO ALLOYS AND
MINERALS
BEARINGS
FY
FY
2006-07 2007-08
1485
8
16541
1099
1217
1454
140
1808
127
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TREND OF DEBTORS
YEARS
DEBTORS
FY 200304
FY200405
FY 200506
FY 200607
FY 200708
756.06
581.82
539.4
631.63
543.48
Analysis
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There has been decrease in the trend of debtors in last five years, from Rs.756.6crores to
Rs.543.48 cores. This decrease in debtors shows a more profit to the company. The
increase in the debtors during 2006-07year might be due to the acquisition of CORUS.
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
FY 06-07
614
688
756
663
658
753
680
670
731
709
774
667
FY 07-08
694
687
662
683
669
767
733
636
677
691
716
577
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CREDIT PERIOD: the credit period is decided on the basis of the type of the product
and is generally of fixed nature. However, special customer may be allowed a variance in the set
credit period depending upon the volume of sales and customer relationships.
INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A
every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of interest
for unsecured credit is1% more than the corresponding rate under secured credit . there is a penal
interest of 3% over the applicable rate of interest.
Time period
Secured credit
Unsecured credit
After 30 days
18.5%
19.5%
After 60 days
19.5%
20.5%
After 90 days
20.5%
21.5%
CASH DISCOUNT:
Cash discount of 2% has also been allowed for certain products in different division. The
discounts had a positive response from certain customers who had working capital problems i.e.
whose inventory turnover have also ignored the discounts and debtors turnover is low or whose
operating cycle is long
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COLLECTION EFFORT:
A constant touch with the customers is the best way of reminding him about his payment
schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total sale
is done to keep a track on debtors and cash position. Tata steel s collection efforts were not up to
the mark that is the reason why outstanding of greater than
Calculation of ACP
With the help of these, monthly reports are generated and are sent for review to credit control
committee chaired by V.P (F&A).
In case of secured credit where Tata Steel is also a debtor of its customers, it uses its accounts
payable as tool to realize its accounts receivables. In cases, which have the symptoms of
becoming the bad, a reconciliation statement is prepared and the mutual agreement arrived at.
However in the worst case legal action is pursued and bad debts are not written off before five
year.
FOLLOW UP
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Proper follow up is done for the timely collection of debts. A daily, weekly, monthly report
regarding the sales is done to keep track on debtors and the cash position. Efficient and capable
Customers Accounts Managers are appointed for this purpose. Customers Accounts Managers is
responsible for the collection of debts and follow up of the customers. Now TATA STEEL has
adopted many ways to follow-ups:
Phone; Fax; E-mail ;Letters ; Personal visit
1) BIFR CASES
a) Above three years
%Age
Provisions
required
100%
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Amount of Provision
outstandin required
g
I.
II.
Recoverable
Non Recoverable
Total
100%
100%
100%
TOTAL
2) LEGAL CASE
c) Above three years
I.
Recoverable
II.
Non Recoverable
Total
d) Below three years
I.
Recoverable
II.
Non Recoverable
Total
100%
100%
100%
100%
TOTAL
3) GOVT./TOWN DUES
e) 6 month-1 year
I.
Recoverable
II.
Non Recoverable
Total
f) 1-2 Years
I.
Recoverable
II.
Non Recoverable
Total
g) Above 2 years
I.
Recoverable
II.
Non Recoverable
Total
TOTAL
0%
100%
50%
100%
100%
100%
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4)SUBSIDIARY COMPANIES
h) 6 months-2 years
I.
Recoverable
II.
Non Recoverable
Total
i) Above 2 years
I.
Recoverable
II.
Non Recoverable
Total
0%
100%
100%
100%
TOTAL
5)OTHERS
j) 6 months-three years
I.
Recoverable
II.
Non Recoverable
Total
k) 3 years-5 years
I.
Recoverable
II.
Non Recoverable
Total
l) Above 5 years
I.
Recoverable
II.
Non Recoverable
Total
TOTAL
0%
100%
100%
100%
100%
100%
GRAND TOTAL
OVERVIEW
Managing the debtors for Tata steel is an important and chief function of the sales accounts
division of finance and accounts. All the transactions of commercial nature are dealt with by this
department in a detailed outline frame of working. The debtors arise each month out of the sales
made on credit and suitable feeding of the required figures has to be made once in a month. This
function is very much a difficult task owing to the various subsidiaries and associate companies
being controlled by TISCO itself.
The activities of each of the companies are diverse in operations and require different policy
formulations and strategies for complying with the existing market requirements. But they are
controlled in a centralized manner so that they give an actual overview of the standing of the
company. The profitability of each of the above is equally important to arrive at a consensus for
finding out the actual earnings and future prospects. As such each of the company under
subsidiary and associate is incorporated under distinct centres as Profit Centre.
To flatten the organizational structure and developed authority and responsibility for the quicker
responsiveness to changing market conditions and greater initiative in dealing with different
target markets, Tata steel has brought in the concept of profit centre. For all practical purpose,
each profit centre functions as a separate company within the hold of Tata steel. From the
debtors management point of view also each profit centre has the responsibility of appraising and
dealing with its customers. However the overall control is centralized and is in the hands of the
finance department. The main function which lies at the hands of Tata steel, Jamshedpur is to
report such standings of the actual debtors as on a particular date to the MD in the form of a
monthly report. The figures thus arrived at give an overview of which profit centres contribute
the most to the debtors standing and the specific reasons for the same.
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Being a steel manufacturing concern, Tata steel is mainly concerned with the actual debtors
arising for the following profit centres:
STEEL
WIRE DIVISIONS
TUBES DIVISION
BEARINGS
Each of the above profit centers have debtors of their own which are handled and managed in a
centralized manner. For an example, tubes division is one of the most important division which
has the maximum contribution to the total sales taking together all the profit centers at a point of
time. It has various parties of its own as debtors such as ESSAR STEEL LIMITED, BLUE
STAR LIMITED, TATA CHEMICALS LIMITED, MECHATRONICS and many debtors.
A database relating to the different parties is maintained in a pre specified format which helps in
understanding the actual standing of the debtor from the point of view of the actual sale being
made to the party on credit till date. This format helps in maintaining the records in a form which
helps in judging the actual ageing of the debtors and the amount being recovered from the total
debt. By ageing we mean to give an actual definition to the debtors in terms of how old has the
debt been to him and thereby categorizing him for the purpose. A same prescribed format is used
by all the profit centers for managing their respective debtors.
EXPLANATION
Through this preparation we get to know the actual total debtors figures and the major parties
that have contributed to the increase and decrease in the debtors as when compared with the
previous financial period. It mainly emphasizes upon the total debtors figures and the overdue
debtors and their major contributors in the form of party names and figures. It also gives all list
of indications for the debtors whose standing are for periods beyond six months. This reporting is
crucial for the reason that it gives the management the indicative areas for focus, the reasons for
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a rise in debtors and suitable control for future standing which is profitable to the company as a
whole.
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ORGANISED SECTOR (public and private ltd, companies including govt. undertakings)
Solvency
Financial viability
Technological soundness
Commercial feasibility
Quality of management
Credibility
Past performance
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CREDIT DECISION:
Individual firm / company wise credit limits(in case the entity has different firms or
companies)
SOLVENCY
2.
FINANCIAL VIABILITY
3.
TECHNOLOGICAL SOUDNESS
4.
COMMERCIAL FEASIBILITY
Depending upon the above basis Tata steel have developed a module for assessing the risk
associated with each and every accounts and to judiciously take a decision based on the
information available.
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CONCLUSION
A key strategy in lowering bad debt is reducing the time to recover the invoiced amounts.
Together with stock days; debtor and creditor days are a crucial link between the company's
income statement, its balance sheet and its cash-flow.
While in the income statement a company can book sales and profits to its heart's content, if it is
slower than before at collecting its bills and suppliers demand faster payment, then cash receipts
will not reflect the trend in profits. It is this divergence between profits and cash that is often the
biggest and best signal that a company might be in trouble.
RECOMMENDATION
The state government & other government departments are another problem area in town
division. The company must send frequent reminders, ex-once in 15 days that they have
to pay their dues. The company must negotiate with the government about their
repayment of dues.
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The company is facing problem in collecting the medical bills from corporate customers.
The company must make the list of defaulter in medical bills, which must be kept with
the concern authority. The person in charge must see that the defaulter must not be
entertained, even though it is an emergency case, until he pays his old dues.
The selection of customer must be done carefully, by properly checking the companys
background, its repayment capacity etc. The company should rate the parties by seeing its
past performances. These ratings must be updated every year.
Channel financing is a way through which problems of dues can be controlled to a great
extent but it should be taken care that the company wont be liable for any default made
by the middle person.
Now a day, it has become a normal practice of appointing a third party for collection of
dues which should be taken into account as it removes the burden of collection for the
company. Proper agreement between the third party and the company should be
formulated in which all the terms and conditions must be mentioned. It should be without
recourse and a third party should be legally appointed, thus not hampering the goodwill
of the company and also taking care of the collection process
BIBLIOGRAPHY
Websites
www.tatasteel.com
www.tatasteel100.com
www.economywatch.com
www.businesslink.gov.uk
www.studyfinance.com
www.financialexpress.com
www.worldsteel.org/?action=programs&id=64
www.indianindustry.com
http://steel.nic.in/
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http://en.wikipedia.org/wiki/steel
www.newssteel.com
Book
Modern Working Capital Management
Frederick C. Scherr
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