RICOH

imagine.chang

AN EMPERICAL STUDY ON THE

DEBT MANAGEMENT SYSTEM
AT RICOH

UNDER THE SUPERVISION OF:

MR. NAVEEN SINGH COMPANYS MENTOR
DR. PAWAN GUPTA - FACULTY MENTOR
SUBMITTED BY:
NIDHI JAISWAL
PGDM-2013-15
ROLL NO.-63

INDEX
Title
Acknowledgement
Executive summary
Company Overview
Research Methodology-Introduction pic
Scope
Introduction
Objective 1
Objective 2
Objective 3
Objective 4
Objective 5
References

Page no.
2
3&4
5-13
14
15
16-26
27-33
34-41
42-52
53-60
61-72
73

ACKNOWLEDGEMENT
On preparation of the research project I would like to thank my
Institute for giving me the privilege to work in such an
esteemed organization RICOH INDIA LTD. Next my
greatest debit and intend by heart full gratitude to my advisor
Mr. Naveen Singh and his team for their guidance in the
project Debt Management of Ricoh India.
I am really very glad that I got an opportunity to get an exposure
of a real corporate environment at RICOH INDIA LTD. I
became aware of the actual way that how a business runs by
interacting with them.
I am also grateful to Dr. Pawan Gupta, and my family who
helped me inthe process of internship without which this
project would not have gained its present shape

REGARDS
NIDHI JAISWAL

EXECUTIVE SUMMARY
The objective of this research was to study the Debt Management system of Ricoh India. The
research project includes various tools and methods which helped in analysis of effect of Debt
Management on the company.
The analysis of the Debt is done through calculation of the DSO (Days Sales Outstanding). The
sampling
method adopted in this research project is Quota Sampling. In this type of sampling population is
first segmented into mutually exclusive sub-groups, just as in stratified sampling Then judgment
is used to select the subjects or units from each segment based on a specified proportion. On the
basis of which analysis is done.The data is sorted proportionally in which the debt of each
segment is calculated (what proportion each segment holds of the total debt). After calculating
the contribution of each segment the sorting is done on the basis of the segment which
contributes major proportion of outstanding to the total debt of the company.

Age band of each segment is analyzed which holds the maximum proportion of the total debt of
that segment. The sample of customers whose total outstanding is more than 20000 is analyzed
out of those top 20 customers data is looked upon and enquired which involved proper follow up
for the payment of debts as well to know about the reasons of non- payment of the amount,
contract value, payment terms and feedback for the services provided by the company and any
grievance which is not entertained.
Effective credit management determines the business cash flow and thereby, the liquidity of the
operations. Failure to effectively manage credit sees small business experiencing late payment to
their creditors and a breakdown in the supply chain which then affect their ability to service their
3

debtors..Credit management activities encompass both debtors and creditors. Failure to ensure
terms of credit for debtors to maintain cash flow,which in turn enhances prompt payment of
creditors, is cause of many small scale business failures. Thus, credit management needs to
ensure proper monitoring of cash flow and other liquidity related indicators as well as appropriate
procedures to carefully evaluate the customers capacity to meet the business credit payment
terms.

RICOH INDIA LIMITED

MISSION & VISION OF RICOH

At the Ricoh Group, we are committed to providing excellence to

improve the quality of living

MISSION STATEMENT

To be the most trusted brand with

irresistible appeal in the

global mark

VISION STATEMENT

VALUE STATEMENT

To be one global company, we must care about people, our profession,our society, and our
planet. We must dedicate our winning spirit, innovation and teamwork to sharpen our customercentric focus, and wealso must commit to the highest standards of ethics and integrity.
Business has changed dramatically in the past two decades. Companies operate in a global
Marketplace and share much of their information digitally, so it is vital for them to network their
equipment to survive and prosper. Ricoh can accommodate changing work styles by providing an
array of product and supporting solutions that can deliver complete value packages for the
business processes of its customers.

Integrating people, planet and profit

Ricoh believes that business development is compatible with social sustainability. It pursues
economic, social and environmental value so it can generate technological and business model
innovations that make a difference. In keeping with the Ricoh Groups CSR Charter, we
formulate and execute action plans in the four priority areas:

Integrity in corporate activities

Harmony with the environment
Respect for people
Harmony with society

INTRODUCTION OF THE COMPANY

Ricoh India Limited (Ricoh) markets imaging solutions, networking input/output systems, and
networking system solutions, in India. It is a subsidiary of the Japanese company, Ricoh Co.
Ltd., with 26.4% shareholding held by the Indian public. Ricoh India Ltd is a 73.6% owned
subsidiary of Ricoh Co. Ltd. Japan. The Indian Public holds the remaining 26.4% shareholding.
Ricoh India has a nationwide presence through 14 branch offices at major metro locations. In
other locations it is represented through a dealer network with over 500 dealers(As on 30th April)
having a team of service engineers who are trained by Ricoh India. The company employs over
940 people (As on 30th April). Ricoh India declared a turnover of Rs. 1047crore (excluding
taxes) for the year ended March 2014. It has worldwide operations through 317 subsidiaries and
affiliates (105 companies in Japan and 212 overseas) employing more than 83,400 employees
across the globe. This position has been built over the years through its dedication towards
technological leadership.

Creating true value for our customers

Main businesses
Ricoh has focused relentlessly on creating value for customers since its Establishment in 1936.
We apply our core values of harmonizing with the Environment, simplifying your life and work,
and supporting knowledge Management in providing products, systems, solutions and services to
Customers around the globe.

BUSINESS OF THE COMPANY

Ricoh Company Ltd. Japan, the parent company of Ricoh India Limited, is a leading global
player in the area of (a) Imaging solutions like Digital Plain Paper Copiers, Color Plain Paper
Copiers, Color & Mono Laser Printers, Fax machines, Thermal paper etc., (b) Networking
Input / Output systems like Multifunction Printers, Services and Software, Scanners etc. (c)
Networking System Solutions like PCs, Servers, Networking equipment, Networking software
etc. This dedication has seen Ricoh constantly creating new values for the world at the interface
of people and information. Ranked by FORTUNE magazine as one of the Global Most Admired
Companies for two years in a row. Ricoh, which has won the Demings award twice, is honored
to be included in the top 100 listing of the most admired companies worldwide.

PRODUCTS OF THE COMPANY

Multifunctional Printers

LaserPrinters

Production Printing

CopyPrinters

Projectors/UCS/IWB

ITS- RicohDocs, Cloud Services etc.

AWARDS WON BY THE COMPANY

i.

ENVIRONMENTAL AWARDS
ASIA RESPONSIBLE ENTERPRENEURSHIP AWARDS
(AREA),2013:
Eco Action Day, a nationwide campaign in Singapore, spearheaded by Ricoh Asia Pacific Pte Ltd
and supported by various government agencies including National Climate Change Secretariat
(NCCS) under the Prime Minister Office, National Environment Agency (NEA) and Singapore
Environment Council (SEC), received its first environmental award.
Ricoh Asia Pacific, Singapore's sole representative, is one of the 20 companies from Indonesia,
Malaysia, Philippines, Singapore, Vietnam and Thailand to receive the prestigious Asia
Responsible Entrepreneurship Awards 2013 Southeast Asia for its corporate social responsibility
(CSR) initiative under the Green Leadership category.

SINGAPORE SUSTAINABILITY AWARDS,2013:

10

Ricoh Asia Pacific receives the Singapore Sustainability Award recognition under the Green
Technology category presented by the Singapore Business Federation during the Singapore
Sustainability Award Ceremony 2013. This award recognizes organizations for demonstrating
strong and compelling green technology solutions, while ensuring a high level of commitment
and performance to other criteria of corporate environment responsibility, measurement of
impact and innovation.
Ricoh is the only organization in the office and printing solution industry to be awarded for its
Quick Start-up (QSU) energy saving technology, which enables printers and copiers to start up
quickly from the sleep mode. The development of this technology is one of Ricohs positive
contributing factors to CO2 reduction in the customer premises and thereby minimizes the
environmental impact.

INTERNATIONAL ALTERNATIVE INVESTMENT REVIEW (IAIR)

AWARD,2013

Ricoh Asia Pacific receives the Best Company for Sustainability in Asia Pacific Region during
the IAIR Award Ceremony 2013. As the sole sustainability award winner in the office and
printing solution industry, Ricoh receives commendable statement for its ability in combining
high quality technological solutions with a sustainable approach since its inception. The
development of energy saving technology has enabled CO2 reduction, minimizing the

11

environmental impact through user-friendly and innovative products while promoting green
initiatives and social responsibility.
International Alternative Investment Review (IAIR) Excellence in Global Economy and
Sustainability, is a global independent publication and one of the fastest growing magazines
worldwide concerning global economy and sustainability. The awards are voted by 50,000
readers and selected by the judging panel based on the following criteria; sustainability, business
results, leadership, green initiatives, strategic development, high quality of service, innovation
and education.

BRONZE SUSTAINABILITY AWARD,2014

In September 2013, Ricoh becomes a component of the Dow Jones Sustainability Indices for
socially responsible investment.

19th Annual WEC Gold Medal Award 2003

Ricoh has been awarded the 19th annual WEC Gold Medal for International Achievement in
Sustainable Development. The prestigious WEC Gold Medal was awarded by an independent
jury of distinguished international environmentalists to a corporation that demonstrates preeminent leadership and contributes to worldwide environmental quality.
Ricoh was selected as the winner of the Outstanding Corporate Public Relation Award by Keizai
Koho Center. Ricoh was awarded for its initiatives for environmental protection, and seeing itself

12

as a global citizen, the company represented the best candidate to achieve a high level of
business performance.

ii.

CORPORATE AWARDS
Ricoh is Recognized by FTSE4Good Index for Meeting High Standards:
Tokyo, 13 April 2011 The corporate responsibility standards of Ricoh Company, Ltd. have
been recognized for the eighth consecutive year by the FTSE4Good Index. Ricoh's
environmental management approach was rated as 'Best practice'. It was also acknowledged for
having 100% of its operations covered by ISO14001-certified environmental management
system. Ricoh meets the criteria which include; environmental management, climate change,
human and labour rights, supply chain labour, corporate governance and countering bribery. The
criteria are developed using an extensive market consultation process and are approved by an
independent committee of experts. A broad range of stakeholders have helped to shape it,
including NGOs, governmental bodies, consultants, academics, the investment community and
the corporate sector.
13

 Ricoh MFPs Earn Common Criteria Certification Conforming to IEEE

2600.1
Ricoh, a global leader in digital office solutions, successfully obtained Common Criteria
certification conforming to IEEE 2600.1, an international standard for IT security products, for
Aficio MP2851/3351/4001/5001. Ricoh is committed to developing security features for its
multifunction products (MFPs) and printers, designed to help protect printed and electronic data
contents against opportunistic or targeted threats.

RESEARCH REPORT-AN EMPERICAL STUDY ON THE

DEBT MANAGEMENT SYSTEM OF RICOH INDIA
HYPOTHESIS: The Debt Management system of Ricoh India:
Impact of late payment of debt in the survival of the business
Monitoring debtors to generate payments
Effect on the solvency of the business
Late payment of the debts leading to problem in growth and survival of the business
Positive or Negative impact of debt management on the company

RESEARCH METHODOLOGY
In this project the analysis is done on different segments of the customers. Descriptive Research
is involved in the analysis of every segment in which sample was created on the basis of which
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analysis of every customer is done and payment is evaluated and its account is reconciled.
Descriptive research studies describes the characteristics of every individual. Quota sampling
method has been used in this research.

In the research of debt analysis the sample of customers of different segments such as ORS, &
Non ORS like RENTAL, Short term Rental, 4C, AMC, PP-FUNDING was taken in which those
customers were selected whose total debt outstanding was more than $20000. The customers
were also selected as per the different age bands. On the basis of which analysis was
done.Secondary data has been used to conduct this research.Quantitative & Qualitative

Research method has been used to conduct this study. Companys financial report for
last five years has been utilized and companys real data like AGEGING REPORT,
DEBT TRACKERS,& DEBT LIQUIDATION PLAN (DLP) has been used as a main data
gathering instrument.

SCOPE
The scope of the project is to understand the impact of debt management on the company. The
importance of credit management therefore to any business organization cannot be over
emphasized because it is a factor that has a strong influence on the cash inflow of an organization
from its sales activities which is very critical to any business organization. The scope of credit
management may be explained as the premise of debt management. The term may be used to
express the various areas that are covered by the credit management processes as well as the
various benefits that may be received from the process of credit management. The scope of credit
management may also include the various types of credit management programs that are
15

presently in operation. From a governmental point of view the scope of credit management
extends to all the financial dues that are under the control of the governmental bodies. Credit
management is an alternative term for credit control. Credit control is an important component in
the overall profitability of many firms. Thus, for any businesses which provide "open terms"
policy to their customers, it is important to have a cap on the amount of credit given

INTRODUCTION
DEBT Management(Account Receivable) is the process for controlling and collection of
payments from customers. This is the function within a bank or company to control debt policies
that will improve revenues and reduce financial risks. A good debt management system will help
you to reduce the amount of capital tied up with debtors (people who owe you money) and
minimize your exposure to bad debts.
Debtmanagement is a term used to identify accounting functions usually conducted under the
umbrella of Accounts Receivables. Essentially, this collection of processes involves qualifying
the extension of credit to a customer, monitors the reception and logging of payments on
outstanding invoices, the initiation of collection procedures, and the resolution of disputes or
queries regarding charges on a customer invoice. When functioning efficiently, cash & credit
management serves as an excellent way for the business to remain financially stable.

The process of debtmanagement begins with accurately assessing the credit-worthiness of the
customer base. This is particularly important if the company chooses to extend some type of
credit lineor revolving creditto certain customers. Proper creditmanagement calls for setting
specific criteria that a customer must meet before receiving this type of credit arrangement. As
16

part of the evaluation process, creditmanagement also calls for determining the total credit line
that will be extended to a given customer.
Several factors are used as part of the creditmanagement process to evaluate and qualify a
customer for the receipt of some form of commercial credit. This includes gathering data on the
potential customers current financial condition, including the current credit score. The current
ratio between income and outstanding financial obligations will also be taken into consideration.
Competent creditmanagement seeks to not only protect the vendor from possible losses, but also
protect the customer from creating more debt obligations that cannot be settled in a timely
manner. After establishing the credit limit for a customer, debt management focuses on providing
the client with accurate and timely statements or invoices. The invoices must be delivered to the
customer in a reasonable amount of time before the due date, thus providing the customer with a
reasonable period to comply with the purchase terms. The period between delivery of the invoice
and the due date should also allow enough time for the customer to review the invoice and
contact the vendor if there are any questions or concerns about a line item on the invoice. This
allows all parties concerned time to review the question and come to some type of resolution.
When the process of debtmanagement functions efficiently, everyone involved benefits from the
effort. The vendor has a reasonable amount of assurance that invoices issued to a client will be
paid within terms, or that regular minimum payments will be received on credit account
balances. Customers have the opportunity to build a strong rapport with the vendor and thus
create a solid credit reference.
A credit manager is a person employed by an organization to manage the credit department and
make decisions concerning credit limits, acceptable levels of risk and terms of payment to their

17

customers. In companies, the role of Credit manager is variable in its scope. . Credit managers
are responsible for:

Controlling bad debt exposure and expenses, through the direct management of credit terms on
the company's ledgers.
Maintaining strong cash flows through efficient collections. The efficiency of cash flow is

measured using various methods, most common of which is Days Sales Outstanding(DSO).
Ensuring an adequate Allowance for Doubtful Accounts is kept by the company.
Monitoring the Accounts Receivable portfolio for trends and warning signs.
Enforcing the "stop list" of supply of goods and services to customers.
Determine credit ceilings.
Setting credit-rating criteria.
Setting and ensuring compliance with a corporate credit policy.
Obtaining security interests where necessary. Common examples of this could be PPSA's, letters

of credit or personal guarantees.

Initiating legal or other recovery actions against customers who are delinquent.

SIGNIFICANCE:
The study of debt management is important for the following reasons:
Credit management focuses on providing the client with accurate and timely statements or
invoices. The invoices must be delivered to the customer in a reasonable amount of time before
the due date, thus providing the customer with a reasonable period to comply with the purchase
terms.
If credit management functions efficiently, everyone involved benefits from the effort. The
vendor has a reasonable amount of assurance that invoices issued to a client will be paid within
terms, or that regular minimum payments will be received on credit account balances. Customers

18

have the opportunity to build a strong rapport with the vendor and thus create a solid credit
reference.
It will be relevant to scholars, investors, management, and society at large. It will throw more
light on why there is need for credit management.
It will enablethe management toimprove the management of credit in order to attain the aims of
business effectively and efficiently.
Effective credit management is about developing consistency in your credit and collection
processes. This, in turn, will ensure efficiency in your entire revenue cycle.
Credit management financials and participation in industry credit groups can help to develop the
information necessary to making a reasonable decision about extending credit to both new and
existing customers.

LIMITATIONS
Debt collectors can't collect on a debt indefinitely. There's a statute of limitations on debt that
limits the amount of time a debt can be collected on. The statute of limitations varies by state. .
Before the customers agree to pay an old debt, first make sure the statute of limitations hasnt
expired. If it has, customer might not have to pay.There are two major types of limitations on
debt:
The first has to do with how long debt problems can show up in companys credit reports.
Federal law typicallyrequires credit bureaus to drop negative information after seven years. The
clock usually starts ticking 180 days after the account first goes delinquent (in other words, when
19

you miss your first payment). There are exceptions: Bankruptcies can remain on your credit
reports for up to 10 years, and some debts, such as unpaid tax liens, can stay on company reports
indefinitely.
The other curb on debt collection is the statute of limitations, which gives creditors a certain time
period in most states, three to six years in which to sue you over a debt.

Customer error:
Occurs where the customer has provided inaccurate or incomplete information, or failed to report
a change in their circumstances, but there is no suggestion of fraudulent intent. For the purpose
of recording error the customer should be seen as any third party outside of government with
whom there is a financial relationship of any kind.

Official Error:
Occurs where the correct information has been provided by the customer but this information has
been incorrectly processed. Where possible, departments should be able to distinguish whether
an error is due to the actions of a customer or official.
Error can be further broken down into:
Detected Error (also known as identified error)
Prevented Error
Estimated total loss from Error

Estimation bias- is error of consistent tendency in direction for a sample-based estimate of

the value of a parameter, where a parameter is a characteristic of the population of interest (e.g.,
mean or variance). Estimation bias is distinct from sampling bias and measurement bias in that
we are not concerned with bias arising from the collection of data per se. Rather our focus is
20

limited to bias that arises in the computational process by which we formulate an estimate of a
parameter from data that have already been collected.

MODERN CREDIT POLICIES

Credit Policies- Firm Credit Policies in Place Binding all Employees Dealing with Clients
Credit Information- Use of External Information Important
Credit Limits- Established for all Accounts
Work-out- Rigorous Work-out Regime:
Daily Statements
Debt Collection after Third Statement
Past-due Balances- Interest Charged on Past-due Balances
Strict Enforcement Involving Sales
Debt Collection & Recovery- Outsourced
Insufficient Information- No Credit Score
Significant Negative Information- High Risk Score
Slow Payment Pattern- Set Credit Limit Place Client on Watch-list Constant Monitoring
Good Credit Behavior- Maintain Business Relationship
High Potential Customer- Increase Business Relationship

DEBT MANAGEMENT TIPS

It is best to minimize the likelihood of bad debts through good credit management practices.
Prepare your own policies and procedures for credit management eg. terms and conditions,
invoicing promptly and monitoring your debts.

RICOHS TERMS & CONDITIONS

The following are the terms & conditions of Ricoh while signing a contract with the customer:
Ricoh clearly state in writing the terms and conditions of trade and the credit policy in writing.

21

 Ricoh ensures the document does not contain any illegal terms and can be relied on the event that
court action is necessary to recover a debt.
Ricoh clearly specify what will be supplied, when the work will be done, and when and how debt
is to be recover.
Ricoh obtain a written acceptance of the agreement along with written approval of any variations
to the original agreement.
Debt management is a term used to identify accounting functions usually conducted under the
umbrella of Accounts Receivables. Essentially, this collection of processes involves qualifying
the extension of credit to a customer, monitors the reception and logging of payments on
outstanding invoices, the initiation of collection procedures, and the resolution of disputes or
queries regarding charges on a customer invoice. When functioning efficiently,
creditmanagement serves as an excellent way for the business to remain financially stable.
Ricohs process of debt management begins with accurately assessing the credit-worthiness of
the customer base. This is particularly important if the company chooses to extend some type of
credit line or revolving credit to certain customers. Proper creditmanagement calls for setting
specific criteria that a customer must meet before receiving this type of credit arrangement. As
part of the evaluation process, creditmanagement also calls for determining the total credit line
that will be extended to a given customer.
Several factors are used as part of the debtmanagement process to evaluate and qualify a
customer for the receipt of some form of commercial credit. This includes gathering data on the
potential customers current financial condition, including the current credit score. The current
ratio between income and outstanding financial obligations will also be taken into consideration.
Competent creditmanagement seeks to not only protect the vendor from possible losses, but also

22

protect the customer from creating more debt obligations that cannot be settled in a timely
manner.
After establishing the credit limit for a customer, creditmanagement focuses on providing the
client with accurate and timely statements or invoices. The invoices must be delivered to the
customer in a reasonable amount of time before the due date, thus providing the customer with a
reasonable period to comply with the purchase terms. The period between delivery of the invoice
and the due date should also allow enough time for the customer to review the invoice and
contact the vendor if there are any questions or concerns about a line item on the invoice. This
allows all parties concerned time to review the question and come to some type of resolution.
When the process of debtmanagement functions efficiently, everyone involved benefits from the
effort. The vendor has a reasonable amount of assurance that invoices issued to a client will be
paid within terms, or that regular minimum payments will be received on credit account
balances. Customers have the opportunity to build a strong rapport with the vendor and thus
create a solid credit reference.

Some of the ways to monitor the debt of the company are:

Invoice promptly
Include accurate details on your invoice for the goods or services supplied, the amount due along
with the date and preferred payment method. Always try to resolve invoice queries or disputes
quickly.

Monitoryourdebtors

23

Maintain your debtors' records to identify any due or overdue debts. Develop a good records
management system and keep records up to date so you can quickly identify who owes you
money and how much is owed. Take a proactive approach to credit management by contacting
clients a few days before the due date to remind them a payment is due and ask if they foresee
any problems with meeting their payment. Implement your debt collection practices the minute a
debt becomes overdue and ensure clients do not exceed their credit limits.

DEBT RECOVERY
You may still incur bad debts even with sound credit management policies and procedures. There
are a several methods with escalating degrees of severity that you can use to recover these bad
debts. It is advisable to use a measured approach and select the most appropriate method to
recover the debt while maintaining the relationship with your client.
Essentially, an unpaid invoice is a breach of contract. Disputes arise when parties to a contract
don't do what they agreed - in this case - paying for products or services supplied. You can learn
more about the options available to resolve your contract dispute. Generally, your debt collection
options include:

Personal communication and consultation with your client

A written request to settle the debt (letter of demand)
A debt collection agency
Legal action.

Communication

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Chase overdue invoices immediately. Company contact the client by phone or email the day after
the invoice is due. This lets the client know that they (company) keep close track of their
accounts receivable. Sometimes invoices get lost or overlooked, so maintain positive
relationships with the client and be polite and friendly.
Company ask if the client is experiencing a short-term problem or if there's a valid reason for not
making the payment. Decide how valuable the client is to the business. Company may be willing
to temporarily extend their credit terms, or might cancel the client's credit agreement if late
payments become a persistent problem.

Letter of demand
If communication and consultation with the client does not result in payment of the debt,
company may decide to send a letter of demand. This gives client the opportunity to pay the debt
without spending the time and money associated with legal proceedings. Company keepsa copy
of the letter of demand that company send to the client as it may be required as evidence that
theytried to recover the debt if company proceed with legal action.
Either company or companys lawyer can draft a letter of demand
When drafting a letter of Demand Companyshould not harass the debtor or design it to look like
a court document. These debt collection practices are illegal.
The letter of demand should:
I.
II.
III.
IV.

State details of the debt ( dates, agreements, amounts due, and days overdue)
Include copies of applicable quotes or invoices
Request that payment be made by a certain date
Warn that debt recovery options will be pursued if payment is not received by the nominated
date.
25

OBJECTIVE 1: TO STUDY THE DEBT MANAGEMENT SYSTEM

AT RICOH INDIA
DEBT MANAGEMENT AT RICOH INDIA
In Ricoh, a Debt is created in books as soon as an Invoice is raised on the Customer, irrespective
of whether the Goods have been supplied or Services rendered.Mere creation of a Debt in books
does not make it collectable. It becomes collectable only on submission of the Invoice to the
Customer as well as fulfillment of certain conditions like Delivery, Installation, providing
26

satisfactory service, agreed credit period, etc. Customer acknowledgement of the debt is very
important in rendering it collectable. We must have evidence with us to prove that the Customer
owes us the money.

In Ricoh the revenue is generated by two types of transactions:

I.

ORS

Outright sale of Equipment is that type of revenue where company sells its HARDWARE
products.
II.

NON-ORS
Non ORS is an revenue that accrues through Rental Placements and Billings against After Sales
Service & supply of Consumables and Spares.NON ORS includes:

RENTAL
Equipment placed on monthly rent paid by the Customer. Being self-financed, ownership of the
equipment remains with Ricoh .The rental period is usually three years, at the end of which
option is given to the Customer to re-rent or purchase the equipment.

4 C (CCCC)
Comprehensive Customer Care Contract, under which Ricoh undertakes to maintain the
equipment, supply spares and consumables against a per copy charge payable by the Customer.
Meter readings are taken, usually once in a month and billed to the Customer at the agreed rate
per copy. The equipment in question could be outright sale or rental.

AMC

27

Annual Maintenance Contract with Spares wherein for a fixed sum, Ricoh undertakes to
maintain an equipment including supply of spares, if required. Such contracts are usually valid
for one year.

ASC
Annual Service Contract without Spares wherein the contract price does not include cost of
spares. Costs of spares are charged separately as and when supplied. Usually such contracts are
also valid for one year.

C&M
Call and Material. No contract with the Customer. The Customer places an order as and when in
need of consumables and spares.

FMGT
Facilities Management Services or FMGT it is also a comprehensive contract which includes
supply of stationery, printing and extends to post-printing services like stapling, enveloping and
delivery. Ricoh charges on a rate per page basis every month. Such contracts are usually valid for
three years. Typical examples are telephone bills, and insurance policies.

RICOHS TERMS & CONDITIONS

The criteria on which Ricoh provides debt to its customers is as follows:
RICOH sells its product on the following terms & conditions:
If the customer is JOBBER and he is purchasing the product on credit then he should have to
pay immediately. It means he is getting 0 day for repaying its debt.
If the customer is GOVERNMENT then he is getting 30 days for repaying its debt.
And if the customer is COMMERCIAL then he will get 15 days for repaying its debt.

28

But this is business and almost transaction is done on credit basis therefore it is not possible to
get the debt back within a specified time given to debtors.The above terms & conditions are the
policy of Ricoh but we provide some more extra days for repaying our debts.

CREDIT STANDARD OF RICOH INDIA

1. Capacity refers to the companys ability to generate sufficient cash flow from operations to meet
the payments. Since this represents the primary source of payment of the amount, the
prospective lender will want to know exactly how you intend to repay. The lender will consider
the cash flow from the business, the timing of the repayment, and the probability of successful
payment. .
2. Turnoveris the revenue which the company earns. Ricoh always check the total revenue of the
company to which Ricoh is dealing with.Ricoh checks for the turnover whenever it is dealing
with its new customer because it sees that do the company is able to repay its debt or not.
3. Goodwillis very important Credit Standard which the company sees for. Goodwill is the
intangible assets but it plays very important role while repaying the loan.It explains that from
how many years the company is in the market.
4. Collateral or third-party guarantees are additional forms of security you can provide the lender.
If the business' cash flows are not adequate to pay the amount, the company wants to know there
is a second source of repayment. Equipment, buildings, accounts receivable, and inventory may
29

be seized and sold by the bank if the company defaults on the debt. The payment agreement
should carefully identify any items that serve as collateral. Business owners may be asked to
place personal assets (home, stocks, bonds, etc.) in addition to the business assets as collateral
for a loan. In some cases, the lender may ask for a third-party guarantee where someone else
signs a guarantee document promising to repay the amount if you can't.
A lender will normally want the term of the payment to match the useful life of the asset used as
collateral. If equipment with a five-year expected life is used as collateral, then the term of the
loan will generally be five years or less.
5. Conditionsrefer to national and local economic conditions. How sensitive is the company's
sales to the overall economy? If the country enters a recession soon, will the company's sales fall
dramatically or can they be expected to be relatively unaffected (like a grocery store chain, for
example). Companies with stable sales that are not tied closely to the overall economy are
generally looked upon more favorably by lenders.

6. Nature of businessis very important Credit Standard which the company looks for. Ricoh avoids
dealing with Real State etc. kind of business.

AGE OF DEBT
The period for which a debt is outstanding as on any given date. It is calculated from the date of
invoice and expressed in days. Usually age of debt is analyzed in different age bands like 0 to 30
days,31 to 60 days, 61 to 90 days and so on.Age analysis is of prime importance in debt
management since it tells us where and when to focus as far as collection activity is concerned.
30

The more we allow a debt to get old, the more difficult it gets to collect it.Ricohs policy of Age
debtis the days which is greater than 60 days.

DAYS SALE OUTSTANDING

It denotes the Days of Sales Outstanding (DSO) by establishing a linkage between Debt with
Revenue. It is calculated on the basis of the moving average billings for the last 12 months to
eliminate any billing skews. This makes DSO figures comparable on a month to month basis.
Billing figure also includes all taxes and levies as these have to be collected from the customer.
DSO is one of key tools used in designing and managing cash flow. It can be calculated for a
Branch, Customer, Segment, Channel and so on.

There are basically five requirements in "Performance Measures for

Credit, Collections and Accounts Receivable at RICOH INDIA
It must be communicated to all individuals responsible for the process being measured.
It must be compared to some standard, for instance, past company performance, or an
industry benchmark.
It must be used consistently, from month to month, year to year.
The results should elicit some action - correcting course, managing change for improvement.

It should provide a benefit. This could be as basic as the satisfaction of reaching a goal that
contributes to the organizations success.

31

CALCULATION OF DSO
Due to the high importance of cash in running a business, it is in a company's best interest to
collect outstanding receivables as quickly as possible. By quickly turning sales into cash, RICOH
has the chance to put the cash to use again - ideally, to reinvest and make more sales. The DSO
can be used to determine whether a company is trying to disguise weak sales, or is generally
being ineffective at bringing money in. For most businesses, DSO is looked at either
monthly,quarterly or annually. But Ricoh makes DSO on a monthlybasis.Days sales outstanding
are considered an important tool in measuring liquidity. Days sales outstanding tend to increase
as a company becomes less risk averse. Higher days sales outstanding can also be an indication
of inadequate analysis of applicants for open account credit terms. An increase in DSO can result
in cash flow problems, and may result in a decision to increase the creditor company's bad debt
reserve.
A DSO ratio can be expressed as:
DSO ratio = Accounts Receivable / (Year To Date Billings / 365 days)

CONCLUSION
After studying the debt management system of Ricoh it can be analyzed that the management of
debt is fair but there are some policies which are not followed for example the policy of credit

32

days allowance for different kinds of customers like Jobbers, Commercial & Government are not
get follow up as it should be.

OBJECTIVE 2: To identify the financial performance of RICOH

INDIA with the perspective to debt management system
In order to study the financial performance of Ricoh we need to check the revenue, debtors &
profits of last few years so that we can predict the performance of the company. Following are
the revenues,debts and profit & loss of the business.

REVENUE OF RICOH
Year to Date Billings or Revenue of the company plays very important role in the debt
management system because revenue and debt are directly proportional to each other. As revenue
increases debts are also increases and as revenue decreases debts are also decreases.
I have taken five years of revenue data with the recent financial year also. We can see in the
following table that YTD Billing has been increased year by year which is very good sign for any
company.

33

FINANACIAL YEAR

YEAR TO DATE (YTD)BILLINGS IN 000

2013-14

11255250

2012-13

4761730

2011-12

3802049

2010-11

2961521

2009-10

2565312

Total

25345862

The graph of the above table shows the clear cut increasing revenue. It also shows that the
revenue is increasing every year.We can analyze with the graph the proportion of revenue
increased. From 2010-09 to 2013-12revenue increased but quite slow pace but the revenue of
2013-14 as compared with its precedingyear is almost 2.5 times higher.

34

YEAR TO DATE BILLINGS

12000000

11255250

10000000

8000000

6000000
4761730
3802049

4000000

2961521

2565312

2000000

2013-14

2012-13

2011-12

2010-11

2009-10

DEBTS OF RICOH
Company considers Debt as very important source because it explains how much company is
flexible.As we can see in the table that debts are increasing year by year as the revenue were increasing
year by year.
So here we are seeing that due to increased in revenue our debt is also increased.

35

TOTAL DEBTSOF RICOH

FINANCIAL YEARS

DEBTS IN 000

2013-14

3191800

2012-13

1842300

2011-12

972100

2010-11

688886

2009-10

539493

TOTAL

7234579

In the below table it is clearly showing that debts are increased as the years are increasing and revenue
also increased which showed in the previous graph.

36

TOTAL DEBTS IN RS. '000

3500000
3191800
3000000

2500000

2000000

1842300

DEBTORS
1500000
972100

1000000

688886
539493
500000

2013-14

2012-13

2011-12

2010-11

2009-10

PROFIT OF RICOH
Last but not the least that is profit of the company which is showed in the below table of last five
financial years.We can see that the profits of the company are very fluctuating.It is not directly
proportional to revenue.But we can also see that the profits of last two years have increased.And
the profit of 2013-14 financial year as compared with 2012-13 are far better.It is almost 77 times
bigger than the financial year of 2012-13.

37

PROFIT BEFORE TAX

FINANCIAL YEARS

PROFITS(BEFORE TAX) IN 000

2013-14

301200

2012-13

3900

2011-12

-247

2010-11

254305

2009-10

278319

TOTAL

837477

We can see in the bar graph the direct increase in the profit of first two years.We can also see the loss of
last second year.

PROFITS RS IN '000
350000
300000

301200
254305

250000

278319

200000
150000
100000
50000
0

3900
2013-14

2012-13

2011-12
-247

2010-11

2009-10

-50000

38

COMPARISON OF REVENUE,DEBT & PROFIT:

In the below table revenue, debts and profit are shown together. Here it is clearly shows that how the
debts are increasing due to the increase in the revenue(YTD BILLINGS).It also shows the impact on
profit

FINANCIAL YEARS

YTD BILLINGS

TOTAL DEBTS

TOTAL PROFIT

2013-14

11255250

3191800

301200

2012-13

4761730

1842300

3900

2012-11

3802049

972100

-247

2010-11

2961521

688886

254305

2009-10

2565312

539493

278319

39

In the below graph we can also see the direct impact on debts as the revenue increases and the impact on
profit also.

COMPARISION OF REVENUE,PROFITS & DEBTORS

12000000

11255250

10000000
8000000
6000000
4761730
4000000

3802049

3191800

2961521

2000000
301200
0

2565312

1842300
972100

688886
254305

539493
278319

2011-12
-247

2010-11

2009-10

3900

2013-14

2012-13

-2000000

FINANCIAL YEARS

TOTAL REVENUE

TOTAL DEBTORS

TOTAL PROFIT

CONCLUSION:
We can conclude from the above data that the financial performance of the company is good
from last two years.Because from last two years profits are increasing as revenue and debts are
also increased. But before that the profits were negative and in the year 2010-11 and 2010-09 the
profits were positive but again company was not in profit in the year 2010-11.

40

OBJECTIVE 3: To compare the financial performance of RICOH

with the industry benchmark
To compare the financial Performance of Ricoh with the competitive company so for this we need
To focus on some ratios:

Inventory turnover ratio

Bad debt ratio
Credit period allowance

INVENTORY TURNOVER RATIO:

The inventory turnover ratio measures the rate at which a company purchases and resells
products to customers. There are two formulas for inventory turnover:
The first formula is considered to be more common. The second formula accommodates the fact
that sales are recorded at market value while inventory is recorded at cost, and its use of average
inventory smoothed the effects of seasonal inventory changes. Because there are two formulas, it
is important to be clear about which is being used when comparing inventory turnover ratios.

WHY IT IS IMPORTANT?
41

In general, low inventory turnover ratios indicate a company is carrying too much inventory,
which could suggest poor inventory management or low sales. Excess inventory ties up a
company's cash and makes the company vulnerable to drops in market prices. Conversely, high
inventory turnover ratios may indicate a company is enjoying strong sales or practicing just-intime inventory methods. High inventory turnover also means a company is replenishing cash
quickly and has a lower risk of becoming stuck with obsolete inventory. However, higher is not
always better, and exceptionally high inventory turnover may indicate a company is running out
of items frequently or making ineffective purchases and therefore losing sales to competitors.
It is important to understand that the timing of inventory purchases, particularly those made in
preparation for special promotions or new-product introductions, can suddenly and somewhat
artificially change the ratio.
Different choices in inventory accounting methods can also affect inventory turnover ratios. In
periods of rising prices, companies using the last-in-first-out (LIFO) inventory method show
higher costs of goods sold and lower inventories than companies using the first-in-first-out
(FIFO) method. Thus, LIFO companies generally report higher inventory turnover ratios than
FIFO companies, even when the companies are very similar. Additionally, companies using
LIFO also tend to carry more inventory than FIFO companies; the LIFO method increases cost
of goods sold, which reduces profits and in turn lowers tax liabilities.
Inventory turnover ratios vary by company as well as by industry. Low-margin industries tend to
have higher inventory turnover ratios than high-margin industries because low-margin industries
must offsetlower per-unit profits with higher unit-sales volume.

42

For all of these reasons, comparison of inventory turnover ratios is generally most meaningful
among companies within the same industry, and the definition of a "high" or "low" ratio should
be made within this context.

FORMULA
1. INVENTORY TURNOVER RATIO=SALES/INVENTORY
2. INVENTORY TURNOVER RATIO= COST OF GOODS SOLD/AVERAGE
INVENTORY

RICOHS INVENTORY TURNOVER RATIO as on 31 march 2013-14:

The first formula is generally used which is as follows:
ITR = Sales / Inventory
= 112552.5 / 20641
=

5.45 times

By second formula ITR is as follows:

ITR =

Cost of goods sold/Average Inventory

Cost of goods sold = Opening Inventory + (Purchase-Purchase Return)

Closing inventory

43

= 15501+78847 - 20641
= 94348-20641
COST OF GOODS SOLD

=73707 in lacs

Average Inventory = (Opening stock + Closing stock) / 2

= (20641+15501) / 2
= 36142 / 2
=18071 lacs
Inventory Turnover Ratio = Cost of goods sold/Average Stock
=73707/18071
=4.07874 times
Therefore we can see that the inventory turnover ratio is 5.45 times which is quite
high. High inventory turnover ratios indicates that the company is enjoying strong
sales or practicing just-in-time inventory methods. High inventory turnover also
means a company is replenishing cash quickly and has a lower risk of becoming stuck
with obsolete inventory. However, higher is not always better, and exceptionally high
inventory turnover may indicate a company is running out of items frequently or
making ineffective purchases and therefore losing sales to competitors.

BAD DEBT RATIO

A financial ratio that measures the extent of a companys or consumers leverage. The debt ratio
is defined as the ratio of total debt to total assets, expressed in percentage, and can be interpreted
as the proportion of a companys assets that are financed by debt. The higher this ratio, the more
leveraged the company and the greater its financial risk. Debt ratios vary widely across
industries, with capital-intensive businesses such as utilities and pipelines having much higher
debt ratios than other industries like technology. In the consumer lending and mortgage
44

businesses, debt ratio is defined as the ratio of total debt service obligations to gross annual
income.
A company with total assets of $100 million and total debt of $30 million has a debt ratio of 30%. Is this
company in a better financial situation than one with a debt ratio of 40%? It depends on the industry in
which the companies operate. A debt ratio of 30% may be too high for a company that operates in a
sector where cash flows are volatile and its peers have little debt, since this debt level may reduce its
financial flexibility and competitive advantage. Conversely, a debt level of 40% may be easily
manageable for a company in a sector such as utilities, where cash flows are stable and higher debt ratios
are the norm.A debt ratio of greater than 1 indicates that a company has more debt than assets.
Meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Used in
conjunction with other measures of financial health, the debt ratio can help investors determine a
company's risk level.In the consumer lending and mortgages business, two common debt ratios used to
assess a borrowers ability to repay a loan or mortgage are the gross debt service ratio and the total debt
service ratio. The gross debt ratio is defined as the ratio of monthly housing costs (including mortgage
payments, home insurance and property costs) to monthly income, while the total debt service ratio is the
ratio of monthly housing costs plus other debt such as car payments and credit card borrowings to
monthly income. Acceptable levels of the total debt service ratio, in percentage terms, range from the
mid-30s to the low-40s.

FORMULA

BAD DEBT RATIO = TOTAL DEBT / TOTAL ASSETS

.RICOH INDIAS BAD DEBT RATIO:

Ricohs Bad debt is very less as compared to its competitors. The calculation of bad debt is as follows
45

Bad debt ratio = Total Debt / Total YTD Billings

FINANCIAL YEARS

TOTAL YTD BILLINGS

IN LACS

TOTAL BAD DEBTS

IN LACS

BAD DEBT RATIO

IN %

2013-14

112552.5

60

0.053308456

2012-13

47617.3

64

0.134404933

2011-12

38020.49

60

0.157809644

TOTAL

198190.29

184

0.092840068

In the above table we can see that the three financial years and the three years YTD Billings which is
Year to Date billing which is the total revenue of the company. Table also shows the total doubtful debts
of three financial years of the company.And lastly it also shows that the bad debt ratio of the company.

As the table stated that the revenue of the company has been increasing year-by-year. But the
doubtful debts are being constant or we can say quite fluctuating. So here Bad Debt Ratio of
each year is decreasing which means that company is playing fair with its debt management.
Therefore from the above table we can analyze that the bad debts of the company is very less as
compared with the total revenue of the company.
So we can say that the companys debt is very low as compared with its debt.

CREDIT PERIOD ALLOWANCE

46

The credit period which Ricoh allow to their customers are different for different category of
customers. Actually Ricoh bifurcate their customers into three parts i.e.
i.
ii.
iii.

Jobbers
Commercials
Government
There are some rules for the credit period allowances that company provide which are as
follows:

JOBBERS The policy of the company for the jobber is that Ricoh provide 0 days allowance
to its customers like jobbers.The reason is very simple, Ricoh is B2B Company which means
that it deals with only business to business, company or organization and jobbers are not their
target customers so they do not sell them intentionally. That is the reason why company holds 0
days for it. But if the vendor (Jobbers) comes directly to buy the products then company do not
mind to sell that.

COMMERCIALS The policy of company for the commercial is 15 days.Company

provides this much of time because there are 2-3 steps in the corporate for passing the bill. That
is why Ricoh provides 15 days to get the finance done.

GOVERNMENT The policy of Ricoh for the customers like government are 30 days. The
reason for providing this much of allowance to the government is that the procedure in the public
sector is very lengthy which takes at least 5 steps to get the bill passed to cheque
department.Therefore this is the reason why the company provides this much of time to
government.
But practically when the company collects its receivables, customers generally do not turn up to
pay the money back. So for this Company make Days Sales Outstanding or DSO which is made

47

on the basis of last 12 months YTD Billing. For Example I have to make the DSO for the month
of July then the YTD billing would be from august to July and the debts will be total.
Company make DSO for the control of its debts.It means it is the days within which companys
debt should be recover.For example in the below table DSO is 65.68 days means 66 days which
mean within 66 days the debt of a particular month should be recover.

INDUSTRY BENCHMARK
Now here we can see whole industrys top selected companys
bad debt and
market share

Bad Debt comparisons with competitor

Company

Total
Business
(in Lacs)

% of Total
Business

Bad debt

% of Bad Debts

Ricoh
Canon
Xerox
HCL
Sharp
Kyosera
Konika
HP
Total

112552.5
125765.3
87655.2
85789.8
75896.5
87450.6
86258.9
95837.9
757206.7

15
17
12
11
10
12
11
13
100

60.01
104.8
98.9
85.8
90.6
65.3
25.3
24.22
554.93

5%
8%
11%
10%
12%
7%
3%
3%
60%

From the above table we can see that in terms of market share Ricoh stands on the 2nd place.
Before it Canon comes into the picture. It takes average 15% of the whole industry as a market
48

share. And if we see the bad debts then it stands on the 3rd place in the industry with 5 % as a bad
debt.
Below is the graphical presentation of the bad debts in the industry. As we can see in the graph
Ricoh is standing on the 3rd place.

Bad debt
120
104.8
98.9

100

90.6
85.8
80
65.3

Bad Debts

60

60.01

40
25.3

24.22

Konika

HP

20

Ricoh

Canon

Xerox

HCL

Sharp

Kyosera

Competitots

We can see the following pie chart which shows the market share of Competitors Company in
percentage.

49

Market Share in 131 Business of Digital copier in Fy-2014

HP; 13% Ricoh; 15%

Konika; 11%
Canon; 17%
Kyosera; 12%
Xerox; 12%
Sharp; 10%
HCL; 11%

Ricoh

Canon

Xerox

HCL

Sharp

Kyosera

Konika

HP

From the above Industry Benchmark we can analyze that Ricohs financial position in terms of
debt management is good. Because it stands on the 2nd place in the industry and comes after
Canon. When we talk about bad debt then it stands on the third place followed by HP &Konika.
Therefore after comparing the bad debts and market share of the competitors company and
Ricoh, we can say that Ricoh stands on the Second place in the market and it performance is
good in terms of market share and bad debts.

50

OBJECTIVE 4 : TO IDENTIFY THE GAPS IN DEBT

MANAGEMENT SYSTEM

Ricoh has many ways to recover its debts. The very good thing of a company is that its(companys) bad
debts are very negligible which is shown in the table of bad debts of Objective 3. Ricoh divided its debt
into three parts .i.e.
i.
ii.
iii.

Normal debts
Difficult debts
Bad debts

Normal debts Normal debts are those debts which can be recover easily within the DSO days.
It is a debt for which company do not need to make any extra efforts.

Difficult debts-Difficult debts are those debts for which are quite tough to get back.
Bad debts-It is those debts which cannot recover. Generally Ricoh does not suffer much from
this kind of debt. And the debts which becomes bad that is due to wind of Vendor Company,
liquidation, or any other kind of mishappening.

RICOHS WAY OF MONETORING DEBTORS

51

The very first way to keep the debt low is DSO that is Days Sales Outstanding which Ricoh head office
maintains and the branches have to follow it. DSO is the maximum days within which the branches have
to collect the debts of a particular customer in a particular month. DSO is high in the months of April,
May and October and in November.

Below is the table and the graph which shows the total days of credit, YTD Billings and the DSO
which is as follows:

RICOHS DSO FOR LAST 3 YEARS

COLUMN1

Total Days

YTD Billings

DSO

2013-14

2025428.654

11255250

65.683

2012-13

848922.0195

4761730

65 07

2011-12

448030.2668

3802049

43.01129

52

DSO
12000000
11255250

10000000

8000000

6000000
4761730
3802049

4000000

2000000

2025428.65
848922.02
448030.27

65.68
2013-14

65.07
2013-12

Total Days

YTD Billings

43.01
2012-11

DSO

It means it is the days within which companys debt should be recover. We can see in the table the three
years of credit period allowance, total YTD billing and DSO respectively.Here the yearly DSO of 201314 is 65.68 days which means that company should collect its debts of a particular customer within 66
days (approx.).

Ricohs second way of monitoring debt is to monitor DEBT LIQUIDATION PLAN that is DLP.DLP
is the data in which the company makes some target of recovering the opening debt as well as the
53

current billing debt. This target is for 12 months. Company also maintains the ACTUAL debts which it
recovers from its customers.Therefore we can see the three financial years DSO of Ricoh with total
closing days till the end of March.And we can also see the graph which is upward which shows a very
good sign for the company.Because DSO is the total days outstanding which should be as minimum as
the company can do.And Ricohs maximum days record is 41 days

HOW COMPANY MAINTAIN DLP:

RICOH INDIA HEAD OFFICE monitors its debts through DEBT LIQUIDATION PLAN. It is a data
which is maintained by Ricoh head office. Head office give target toall of its 13 branches (branches
where man power exists).We can see in the below table that the company set the target for the opening
debt as well as the current billing for the whole year. The target changes every year very slightly.
After setting the target Ricoh head office send the below data to all of its branches and now the main
role of the company starts .i.e. collecting the debts from the customers.Now branches have to achieve
the planned target. But always it is not possible to achieve the planned target. Sometime branches
achieved more than planned and sometime less than that. The below table is the DLP table.

54

55

56

In the above data there is two kind of debt which the company maintains that is Actual & Plan Debt.
The target is in percentage which is different for the different months which is not very flexible.The
target is divided into two parts that is OPENING DEBT AND CURRENT BILLING.
Now BRNCHES plays a very important role here.Because now branch have to recover all its debt
According to its PLANNED TARGET.And then HO consolidate all branches data and find out
thathow much is the debt of the company at the financial year. Company divides the debt in two parts
that is ACTUAL & PLAN.So that company is able to know that how much target is achieved.This data
is prepared on the monthly basis.

GAPS IN THE RECOVERY OF THE DEBT

Company recovers its debt very well but still some gaps are there which occurs bad debts for the
company. There are the following loop whole which results gap in the recovery of the debt:
i.

Terms & conditions - Company provides 15 days of credit to commercials and 30 days of
credit to government but this much days does not follows as it is just a policy but in practical

ii.

debtors take much more days than estimated.

Irresponsibility of the employee Irresponsibility of an employee means lets say the
employee cannot complete his target or may be on leave. This kind of irresponsibility of an

iii.

employee leads to the debts from normal to difficult debts.

Low Man Power It means company has less employees as it should have. Because lets say
the debt collector has more than 250 invoices which he should have to collect in 7-8 working
days. So it is not possible for debt collector to collect 250 invoices or more than that in the 7-8
working days.

57

iv.

Mind set of customers Company cannot change the mind sets of the customers. Sometime
customers do not want to pay the money back. And when the company reminds they just try to
avoid and usually give excuses.

CONCLUSION
I have analyzed some of the facts that there exist some gaps. According to me company does not
follows the policy and procedure which it has made by itself.If Ricoh would follow it and
increase its man power in collection department then the gaps can be reduced.

58

OBJECTIVE 5-TO SUGGEST THE POSSIBLE SOLUTIONS

TO OVERCOME THE IDENTIFIED GAPS

DEBT RECOVERY
Any company dont want to lose their customers. It doesnt matter that customer is purchasing in
cash or in credit. Because it harms on the goodwill of the company. Thats the reason company
maintain its Goodwill. But for the running of the business debts should have to be recover. And
there are some customers who dont pay on time and also not on reminding, therefore an unpaid
invoice is a breach of contract. Disputes arise when parties to a contract don't do what they
agreed.

There are the following steps which the company takes for recovering its debt.

personal communication and consultation with your client

a written request to settle the debt (letter of demand)
Stop Supplying
Legal Action.

COMMUNICATION
Chase overdue invoices immediately. Contact your client by phone or email the day after the
invoice is due. This lets your client know that you keep close track of your accounts receivable.

59

Sometimes invoices get lost or overlooked, so maintain positive relationships with your client
and be polite and friendly.
Ask if the client is experiencing a short-term problem or if there's a valid reason for not making
the payment. Decide how valuable the client is to your business. You may be willing to
temporarily extend their credit terms, or you might cancel the client's credit agreement if late
payments become a persistent problem.

LETTER OF DEMAND
If communication and consultation with the client does not result in payment of the debt, you
may decide to send a letter of demand. This gives your client the opportunity to pay the debt
without spending the time and money associated with legal proceedings. Keep a copy of the
letter of demand you send the client as it may be required as evidence that you tried to recover
the debt if you proceed with legal action.
Either you or your lawyer can draft a letter of demand.
The letter of demand should:
1.
2.
3.
4.

state details of the debt ( dates, agreements, amounts due, and days overdue)
include copies of applicable quotes or invoices
request that payment be made by a certain date
Warn that debt recovery options will be pursued if payment is not received by the nominated
date.

STOP SUPPLING SERVICES

Ricoh stops supplying the services to its customers unless and until it doesnt pay the amount.

60

LEGAL ACTION
Company generally avoids to take any legal action because it effects on the goodwill of the
companybut if the customers are not paying the amount so company has to do this to recover its
amount.

CASH TARGET
Following the DSO principle, it is not difficult to set cash targets to improve the level of debtors
over time. If a company generally allows 30 days credit to customers but has a DSO of 65 days ,
it might decide to target a one-day reduction each month for 12 months, to reduce the asset level
to 53 days without detriment to sales efforts: June DSO 64 days add July sales (31 days) giving
a total of 95 days. With the new DSO target being 63 days, then the cash required in July equates
to 32 days, that is, the cash to be collected in July would be the equivalent of 3/30 April sales
Plus 29/31 of May sales. The setting of a cash target is simply arithmetical, but achieving it
needs specific approaches to larger customers. There are added benefits which make the task
worthwhile, in that it normally leads to better payment continuing in the future with less
Collection effort and better customer relationships.

AGED DEBT ANALYSIS

Any debt greater than 60 days old is defined as aged debt. To achieve a healthy DSO it is essential to
keep the aged debt under control. The Aged Debt Analysis also, of course, by definition shows at a
glance all the customer accounts by invoice age not yet due, current, one month overdue, two months
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overdue, three months overdue and three months and over. On the balance sheet, debtors are a current
asset and should be capable of conversion into cash within 12 months, and usually much sooner. There
are many reasons for debts to be written off, usually insolvencies, but it is a sad fact that many debts are
written off by companies simply because they have not been collected and have become so old as to be
more difficult to achieve success. This is apart from the obvious effect of old age, in that any profit to
have been derived from that sale has long been eaten up by interest costs and further pursuit has become
uneconomic. In such circumstances, the passage of time has made proving the debt in the first place
more problematical, staff at buyer and seller have come and gone, invoices or delivery notes have gone
missing, and the whole scenario has become untenable.
Time is of the essence, and it is not an option to let debts collect themselves. The whole sequence of
delivery, invoice and account collection is a disciplined time-constrained exercise, and the Aged Debt
Analysis is the window on liquidity for anyone to peer through.

The way in which the size and quality of the debtors asset is reviewed should involve the following
measurements:
1. Aged debt analysis:Listing all accounts in either alpha/numeric, or, better still, descending
value order, with columns for current, one, two, three and over three months overdue, plus other
details. This measurement tool is used daily by the credit manager and is available for overview
by the finance director.
2. Cash target sheet:listing the debts comprising, say, 80 per cent of the months cash
requirement, however calculated, and showing actions taken, payments arranged and payments
received. This would be used by the credit manager, and collectors, and updated daily.
3. Cash forecast sheet:showing total amounts of cash expected, split by type of account, either
as single totals or divided into daily or weekly totals for the month ahead. It is useful to show the

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DSO which would result if the forecast were achieved. This would be prepared by the credit
manager and used by the finance director.
4. Monthly debtors report:one page only, on the month just ended, showing total, current,
overdue and disputed debtors, all in sections as required, with aged subtotals, and columns for
last month and budget or forecast. A few lines of commentary should be included, to explain both
exceptional and ongoing actions. The report would be prepared by the credit manager and issued
to the finance director and to the main board.
It may be necessary for the credit manager to also prepare and issue a separate schedule of
disputed debts and unresolved customer queries. Although usually incorporated into the monthly
debtors report as outlined above, there are circumstances where the level of queries or disputes is
such that both the finance director and the main board should be aware of the impact on cash
collection and cash inflow. There can be instances of queries appearing to get out of hand
because of some change in processes or practices, and lack of response from those whose role
should be to ensure customer satisfaction. In such circumstances, senior management should be
involved in the task of putting matters right, and restoring the collectability of the debtors asset
generally.

RECOMMENDATION AND CONCLUSION

DSO can be reduced as under
i.

CREDITCompany should lookinto their credit approval process. Do company have a

credit application? Is companyreviewing their business credit prior to offering terms?
Being cautious about who company extend credit to make a huge difference when
trying to reduce DSO.
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INVOICING -Are customers all receiving their invoices on time? Are the invoices

ii.

clear? Is company providing rewards for early payers and charging those who pay late?
iii.

Has company made it easy for them to pay by offering online payments?
COMMUNICATION is companyreminding customers of their payments? Has

iv.

company asked them why they are paying late?

COLLECTIONSHas company considered sending more accounts to 3rd party
collectors? Could company install payment plans for more customers?
It is important to go through every step of receivables management process and ask ourself these
questions. Look at how company can improve each step of the process and it will see that these
small changes can truly help you reduce DSO. The numbers dont lie, reduce the days sales
outstanding and the cash flow will be the healthiest its ever been.

There are also different strategies adopted by the company to reduce the
companys debt:
Work with your suppliersIn figuring out how to reduce business debt, one of the first
places that you should look should be the suppliers from whom you buy raw materials. If youre
behind on payments, you want to work something out with your suppliers through strong
business-to-business relations. The company most likely depends on what their suppliers sell to
them, so they want to settle any outstanding debts with them first and foremost. Doing so will
make sure that the relationship stays strong and thatcontinue receiving the items they need to
provide their own goods and services.

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 Sell, sell, sellIn order to reduce debt, company need to increase revenue. That much is
obvious. There are several ways to go about doing that, the most straightforward of which is to
increase the sales volume and move more product out the door than have in the past. Offer
incentives to the customers to get them to buy more, as long as its viable for the company to do
so. As companymanage to sell more products, they can use the additional revenue to reduce the
companys debt.

Restructure When many business owners try to figure out how to reduce business debt, one
thing they often fail to consider is how much restructuring might help them reduce debt. From
selling surplus inventory, as well as unused equipment, to cutting back on excess around the
business, there are a several small, but significant things that you can do to get closer to your
goal of eliminating your companys debt.

Reduce Your Operating Expenses This could fall in line with restructuring, or be its
own strategy entirely.

Look over your taxes Speak with your accountant, CFO, or any other financial expert that
you employ and they can help you figure out how to reduce business debt. One way that they
might do this is by going over what you pay in taxes and making sure that you are counting all of
your eligible deductions throughout the year. It pays to do this often because tax laws are always
changing and new ways for businesses to take advantage of tax breaks are always popping up.

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DEBT RECOVERY SOLUTIONS: ACTION PLAN FOR LATE

PAYMENT EXCUSES
1) The check is in the mail: Perhaps the easiest excuse, many times customers will claim the check is
on its way or was even lost in the mail. Its always a possibility, but theres a good chance its just an
excuse.

2) We pay on our own schedule: This can be an excuse you hear often, especially if you are dealing
with a larger business. If there is a lot of red-tape in a company, they might try to tell youthat you have to
do things in their way.

3) Our accountant keeps the books:Customers might put the blame on their accountants, who most
likely (if they have one) do keep their books. However, the accountants dont handle the cash. Dont let
this fool you. Again, this is an excuse more often heard with bigger businesses.

4) The company is going out of business: When you hear this, you must go to many lengths to
confirm it. No need to take the necessary action for a failing business without first confirming the story.

5) We are waiting to get paid by our customers:This excuse is perhaps the most ironic, as you
are both in the same boat. We all know how small businesses can run into cash flow troubles, but
you must be prepared to sensitively deal with such excuses.
Now, these are just some of the most popular responses you will come across when exploring
your debt recovery solutions. Know how to approach each situation, allowing you to increase

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your chances of debt recovery. No matter what debt recovery solutions youre exploring,
preparedness should always be involved.

Get Paid On Time: The Receivables Starter Kit

Late paying customers are a touchy subject since most of the situation is out of companys
control. However, receivables management is a process that takes intricate little steps to help
achieve an amazing goal (i.e. get paid on time). Revamp each of these steps to truly increase the
effectiveness of you debt collection process.
1) Build an infallible credit process If company want to have customers who pay on time,
company must effectively screen them. Dont just extend credit to anyone and everyone. Be
smart. Follow this sample credit process list for help.
2) Company should get the facts that they need to know to screen a new customer New
customers are tricky. Company want to open their credit doors to them but they dont want to end
up making a decision that will clog up your cash flow. Use a sample script for new customers to
make sure this conversation helps the company to make the right credit decisions.
3) Company should always keep note of their conversations with customers who operate on
trade credit - All the customers are important, but when it comes to net terms, it can, at times, be
a game of he-said, she-said. The customer might say to the debt collector that they have mail
late when really company didnt. Use a credit log book to keep any confusion out of the mix.

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4) Have an action plan for common late payer responses The best way to be successful is to
be prepared. The customers will come with the craziest late payment excuses imaginable.
Company should prepare by following this action plan for common late payer responses.
5) Use effective language when calling customers to remind them of payment Late invoices
are a touchy subject. Having to CALL someone about it is even touchier. However, phone calls
are an extremely effective method to help get paid on time. To make them easier, practice
beforehand. Utilize a friendly reminder call script for help.
6) Strategically use payment reminder letters When notifying your customers about late
invoices, its all in the wording. Not all late payers are created equal. Therefore, dont just have
one generic payment reminder letter, have multiple that apply to different situations. Feel free to
utilize these unique collection letter templates to ensure you get paid on time.
7) Outsource the debt Working with a collection agency should always be a last resort, but
sometimes they are the answer. However, trusting someone else than the customers, so choose
wisely. But there is risk in outsourcing the debt that because when the company outsource then it
cannot directly involved with the customer which results in the lack of building relationship with
the customers. And if once company lost the customers then it also impact on the goodwill of the
company. Therefore always outsourcing is not good.

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CONCLUSION
Debtors represent cash and cash which is the lifeblood of any business knowing what we have,
what we are expecting to have and when will enable us to know what we can spend, and when.
Since debtors are a dynkamic but risky asset, it makes sound commercial sense to know how
debtors are made up and to have a real feel for the collectability of sales. The size and quality of
the debtors ledger should be regularly reviewed by the credit manager, the finance director and
the main board of directors:
the credit manager is controlling the ledger directly on a daily basis;
the finance director has an overview as and when required; and
the board of directors are kept informed by regular reports for action as needed.
The management of the cash-producing debtors asset should be proactive, and not simply reactive or,
worse still, passive. Sales are made to customers who vary in states of solvency and liquidity, and
therefore they must be risk assessed in order to be able to decide both credit worth and credit ability. It
follows that collections then have to be organized to suit both volumes and levels of difficulty. Cash
inflow can be measured by the DSO method and speeded up gradually, over time, by reducing the ratio
of days sales unpaid. Companies should be aware of their industry average DSO and set out to improve
their own competitiveness by having faster cash inflow and fewer bad debts than their rivals. All key
managers, including sales, should know and understand the meaning of Netprofit margin, and be fully
aware of their own companys net profit margin. They should not confuse net with gross gross
margins of 30 per cent or even 60 per cent still only produce net margins of 3 per cent or 4 per cent in
many sectors of business. Understanding their own net margins should lead to an equal understanding of
the cost of credit and therefore not be drawn into frittering away the NPBT in free credit concessions.
Nor is it usually profitable to buy customers loyalty by allowing them to defer payments. Every
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company that grants credit to customers should have a simple structure of measuring debtors regularly,
regardless of their size, and should be in a position to take prompt action to correct problem situations.
In order to minimize the likelihood of bad debts RICOH adopt credit management practices Own
policies and procedures for credit management has been adopted eg. Terms and conditions, invoicing
promptly and monitoring the debts, Control aged debt. Proper steps must be taken to resolve the debts so
that it may not spread. The debt is analyzed after calculating the DSO (Days Sales Outstanding) and
analyzing the age of debt. The debt should be controlled in 60 days and must not exceed 90 days. Proper
steps must be taken to resolve the debts so that it may not spread. The debt is analyzed after calculating
the DSO (Days Sales Outstanding) and analyzing the age of debt

The purpose of this paper was to provide the reader with an overview of the debt
management with an emphasis on the debts recovery and its solutions. This paper
also aimed at outlining the practical steps taken for the recovery for the debt
management of the company.

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REFRENCES

Annual Reports of Ricoh

Debt Tracker
Ageing Report of last three years
Days sales outstanding
Debt liquidation Plan

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