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Summer Internship

AT

ACC COMPLEX, SALES UNIT, NEAR TEEN HATH NAKA, LBS MARG, THANE WEST, MAHARASHTRA

    

DEBTOR MANAGEMENT

AND

IMPACT OF GOODS AND SERVICE TAX

(GST)

Summer Internship Project Report

At

ACC LIMITED

By

Akash Singh

From

22nd May 2017-2nd July 2017

Under

Project Guide

Mr. P. Shanmugaraj

ACKNOWLEDGEMENT

Management is a profession wherein no work can be accomplished without the help and assistance of a large number of people, be it your superiors or subordinates. A good manager is the one who knows how to get the work accomplished with the help of his colleagues. As future managers, we are taught to practice such behavior at every step. This project is also a part of it.

It has been a good learning experience for me during my summer internship at ACC Limited. I am grateful to my project guide Mr. P. Shanmugaraj (SU Finance Head) for his continuous support and guidance.

I would like to thank Amity Business School, Amity University, Noida, Uttar Pradesh for providing me with this great opportunity to work as a summer interns in the company of my own choice. Further I would also like to thank everyone in my department with whom I have come in contact during the preparation of this report.

I wish to express my sincere gratitude to Ms. Ritu Wadhwa for her extended support during the study and preparation of the report. All have been profoundly instrumental in making the project undertaken the source of knowledge providing all the support and necessary guidance. I would also like to thank my family members for their continuous support during the Internship.

Table of contents

Sr.No.    Tittle   Page no.

EXECUTIVE SUMMARY

The summer internship was a very good learning experience for me  , this will help me in future when I join any corporate. I would not be scared to take up challenges in the working environment. At ACC LIMITED, THANE , Mumbai I learned many new things which was not known to me. The internship started with reading the 77TH Annual report of 2012 along with the new ‘Commercial Policy'. The new commercial policy was very useful as it had very brief information about the debtor and its efficient management. The salient feature of the new commercial policy was channel management, credit policy, dealer pricing, pricing policy, discount policy. The new commercial policy of ACC LIMITED emphasized more on efficient and effective debtor management in order to ensure that no money is held beyond its permissible limit. As ACC is now a part of global cement manufacturers like Holcim which is now Lafarge Holcim. The need to study Holcim and Ambuja Cement arise. The website of each cement manufacturers was studied to have a complete overview of cement sector in India. Sales Unit- Mumbai(SU-Mumbai) Finance operation was briefed by the mentor. The cement for SU-Mumbai comes from two plants that is Chanda in Maharashtra and Wadi in Karnataka. To understand the finance it was equally important to study the sales directly from cement plants and warehouse.ACC only pays Excise duty tax to central government which allows the movement of cement anywhere in India, unless and until there is any sales. VAT is charged by the seller from the customer and then paid to the government. As GST was a new and emerging topic, attending meeting on GST helped me gain an ample amount of knowledge, with speakers from outside .Impact of GST on transporter, generation of E-Way Bill, GST rate for cement

and its raw material, risk sharing worst impact of GST etc. were discussed upon during the meetings. The effect of  28% GST on the prices of cement. Issues the dealers think which would be harmful to them. The fear in the mind of the dealers having huge stock of cement and the urgency to sell before 30 June was studied. Generation of e-way bill and the timeline within which the goods were supposed to be delivered was considered to be impossible for the logistics department of ACC.GST rates on the raw material for cement was studied to analyse the impact of GST on the prices of cement.

PROBLEM DEFINITION

The objective of the project was to study the debtor policy of the firm, analysing the various parameters, comparison with previous years and that with the industry, investigating reasons for variance as well as giving recommendations for improving the situation if necessary.

 I studied the working of the unit, and learnt about its customers, operations and financials. I also studied with very limited resources about Goods and Service Tax impact on ACC.

The scope of the project is limited to understanding how receivables are managed by the firm and the impact of Goods and Service Tax(GST).

The cement for Sales Unit –Mumbai comes from Chand and Wadi.

About ACC

 ACC Limited is India's foremost manufacturer of cement and ready mixed concrete with a countrywide network of factories and sales offices. Established in 1936, ACC is acknowledged as a pioneer and trendsetter in cement and concrete technology. Among the first companies in India to include environment protection as a corporate commitment, ACC regularly wins accolades for best practices in environment management at its plants and mines, and for demonstrating good corporate citizenship. The quality of its products and customer services make ACC the most preferred brand in the Indian cement industry. ACC Limited is part of the worldwide Holcim Group.

 Products

ACC\'s brand name is synonymous with cement and enjoys a high level of equity in the Indian market. Our range of cements and blended cements is marketed through a countrywide network of Sales Units, Area Offices, and warehouses. This is backed by a vast distribution network of over 9,000 dealer who, in turn, are assisted by their sub-dealers.

ACC's marketing, sales and distribution processes are industry standards. Although we take immense pride in having supplied some of India's most admired projects, ACC is essentially a people's brand of cement with more than 80 per cent of sales made through an extensive dealer network that covers every state in India. Its customer base represents the masses of India - individual homebuilders in small towns, rural and semi-urban India. ACC cement enjoys an image of assuring consistency and of high quality backed by in-house research and expertise.

Complementing this is a unique customer services cell comprising qualified civil engineers, who assist and advice customers with prior and post sales service. This service begins with selection of type and grade of cement (where applicable) to troubleshooting and on-site assistance.

ACC manufactures the various kinds of Portland cement for general construction and special applications.

• Regular Cement

 • Blended Cement

• Bulk Cement

 • Ready Mix Concrete

• Indian Concrete Journal

 • Concrete Manufacturing Process

 • ACC Concrete Value Added Products

Subsidiaries and Associates

 • ACC Mineral Resources Limited : ACC\'s wholly owned subsidiary, The Cement Marketing Company of India Limited, was renamed as ACC Mineral Resources Limited (AMRL) in May 2009 with an objective of securing valuable mineral resources, such as coal for captive use. ACC Mineral Resources Limited has already entered into Joint Venture arrangements for prospecting, exploration and mining coal from the coal blocks in Madhya Pradesh and West Bengal. The company is also exploring other opportunities for securing additional coal and gypsum resources in India and abroad

 • Bulk Cement Corporation (India) Limited: Situated at Kalamboli, in Navi Mumbai (formerly New Bombay), this company caters to bulk cement requirements of the city of Mumbai and its environs. It has two cement storage

silos with a capacity of 5,000 tons each. The plant receives cement in bulk from ACC plants at Wadi. The plant has its own special purpose railway wagons and rakes and its own railway siding. The first of its kind in India, BCCI is equipped with all the facilities required by increasingly sophisticated construction sites in a bustling metropolis, including a laboratory, a fleet of specialized trucks and site silos for the convenience of customers and is capable of offering loose cement in bulk-tanker vehicles as well as packed cement in bags of varying sizes from 1 tonne down to 25 kg bags. BCCI is situated strategically on the outskirts of Mumbai, just off the new Mumbai-Pune Expressway. It is a landmark structure spread over 30 acres of land.

• Lucky Minmat: ACC acquired 100 per cent of the equity of Lucky Minmat Private Limited. This company holds limestone mines in the Sikar district of Rajasthan, and helps supplement limestone supply to the Lakheri Plant.

• National Limestone Company Private Limited: National Limestone Company Private Limited is a wholly owned subsidiary. The company is engaged in the business

Awards:

 • Award for Excellence in Financial Reporting for Annual Report by Institute of Chartered Accountants of India (ICAI)

 • India\'s Most Admired Companies in the Cement Sector by Fortune India magazine and Haygroup India

 • Jamnalal Bajaj UCHIT VYAVAHAR PURASKAR to ACC for 2008 for fair Business Practices by Council for Fair Business Practices

• National Safety Council, India, Safety Award for 2013 to ACC Damodhar

 • CSR Impact Award 2014 to ACC Lakheri by Indian Institute of Corporate Affairs

OPERATION AT MUMBAI OFFICE:

Mumbai Sales Unit office is included in the Western operation region of ACC Ltd. Other sales unit at Pune, Secunderabad, and Nagpur are a part of this region. These offices have the responsibility of supervising the sales and managing the debtors of their respective areas. As per the past data, average sales in Western region are 400000 tonnes. The table below shows the average monthly sales of each SU.

The cement for Mumbai SU comes from two plants only – Chanda Work and Wadi Works. It is sent through railway or roadway. The cement from each Cement Manufacturing Unit (CMU) is delivered to the customer directly or stored at warehouse. Customers are categorised into three categories:  

a) TRADE CUSTOMERS: They are dealers who belong to the regulated market. These buyers are involved in counter sale and sales to retailers. Mumbai

SU handles around 150 dealers currently. Their credit limit is based on the credit assessment and security deposits. Security deposit is the amount deposited by the dealers at the time of the contract. A lot of trade depends on the relation between the company and the dealer.

 b) NON TRADE CUSTOMERS: They are the direct customers which include contractors, builders etc. These type of customers are not long term. There is high risk involved as they are likely to default. They are also known as ‘Medium Buyers'. SU Mumbai handles around 850 non-trade customers at present. Their credit limit depends on the security given by Del Credere and Canvassing Agent.

c) ICI CUSTOMERS: They are institutional customers who buy in bulk. Their one time orders range from 50-100 tonnes. These customers approach the company directly or through Del Credere agents. Their credit limit is decided on basis of Del Credere or third party assessment. ICI customers do not enjoy any discounts. To attract such top level customers the company gives them a commission of 1% on bill value if payment is done within stipulated period.

   

Del Credere Agency

 Del Credere is a unique third party finance arrangement. Del Credere Agent, called as DCA, who is making finance on behalf of customers and also ensure for the collection of payment for the supplies made by the company. DCA enters an agreement with the company and on the basis he get monthly interest for the finance made on behalf of customers. The customer's credit limit is set on based on the limit given by the DCA. The Monthly interest for the same is 30% p.a and subject to maximum of 30 days only and in case the customer did not make payment, beyond 90 days, ACC will adjust such dues from the customer from DCA finance. On the basis of the market performance of the customer and their relation with Del Credere, these agents take responsibility of their finance.

The purpose of these agents is to avoid bad debts and reduce the company loss. When a non trader buys goods from the company on credit, the Del Credere makes the payment at a predefined date after the goods are delivered to the customer. This insures the company in case of defaults. When the customer pays the company the accounts department transfers the money to the account

of the particular Del Credere. However, if the customer makes the payment, the companies return the cash to the agent at the rate of 30% per annum. In this way the company remains shielded.

The Del Credere gives assurance for two reasons:

1. Payment is made within 9 days from date of supply on behalf of the customer 2. If the customer does not pay within 90 days from date of supply, the company adjusts outstanding of the customer with Del Credere i.e. from the DCA FINANCE. DCA have two accounts with ACC. One is for regular transactions and other for transfer of interest amounts. To understand the DCA finance, we will consider

Different cases. It is important to know that the existence of DCA is not disclosed to the customer. Assume that all orders are placed by customer A on 1st March 2017. DCA pays the money on 10th March 2017 as per the DCA agreement. The customer is given a credit period of 30 days for his payment.

Case1: When the customer pays 20th March (Within Credit Period). In such a situation the Del Credere gets interest only till the date the customer makes the payment. His interest period starts from 11th March onwards till 20th March.

Expense Income

1/03/17   1,00,000 INR

( Bills Made )

20/03/17   1,00,000 INR

 (Payment to DCA)

10/03/17   1,00,000 INR  

(DCA makes payment)

20/03/17  1,00,000 INR

 (Customer makes payment)

When the customer makes the payment, the balance sheet becomes:

 • First, the Bank account is debited and INR 1, 00,000 is credited in Customer account.

 • Second, the DCA account is credited with this cash and he is given his refund. We debit the customer account

 • Next, debit the DCA account and credit bank account.

 Apart from this, the interest sheet will show the debit and credit of DCA account and Bank account. This is done mostly at the end of the month.

 Interest amount in this case as a cost to company: 833 INR

 Case 2: When customer pays on 30th march (Last Day of Credit Period)

In this situation, the DCA pays on 10th March to ACC, and customer pays within the credit period allowed to him. Here, DCA receives maximum interest given by the firm. The company will refund the entire bill amount to the DCA

after the customer has paid. Thus, DCA gets back his money and the company also is able to avoid outstanding beyond 10 days.

 Interest Amount as a cost to company: INR 1667

Expense Income

1/03/17   1,00,000 INR

( Bills Made )

30/03/17   1,00,000 INR

 (Payment to DCA)

10/03/17   1,00,000 INR  

(DCA makes payment)

30/03/17  1,00,000 INR

 (Customer makes payment)

Case 3: When the customer pays on 8th April 2017(After Credit Period).

 In this situation, the DCA will get the money refund on 8th April. However he will get interest only for 30 days as that is the maximum interest allowed by ACC. There is no interest after 30 days from the day of billing. Thus, on 8th April, the DCA is liable to get the bill amount and added interest amount till the date 30th March.

Expense Income

1/03/17   1,00,000 INR

( Bills Made )

08/04/17   1,00,000 INR

 (Payment to DCA by ACC)

02/03/17   1,00,000 INR  

(DCA makes payment)

08/04/17  1,00,000 INR

 (Customer makes payment to ACC)

Interest as a cost to company – INR 2417

Analysis:

Case 1

 • ACC is having an advantage when a customer pays after 20 days as the DCA payment is credited to the company account on 10th day. So the receivable and payables are nullified. When the customer makes the payment (after 20 days) it will be given back to the DCA, here the interest to be paid to the DCA will be minimum.

Case 2

 • However the company will lose a greater amount when customer makes the payment on the last date of the credit limit. This is because as seen from the example, the company will have refund the bill amount to the DCA along with more interest.

Case 3

• Also, when a customer pays after the period of 30 days from billing date and DCA has made the payment on the next day of the bill, the company pays its highest interest amount. For every bill worth 1, 00,000 INR, the company will lose almost 2417 INR.

Operation at Warehouse:

 The warehouse operation is carried out by Carry & Forward agent (CFA). There is a agreement between the company and the CFA and as per the contractual obligation, they carry out the CFA operation. Their duty is to receive the material from the designated station and to transfer it safely to the warehouse or deliver it to the customer in relation to the STO and Sales Order. CFA also has to arrange for trucks and insure timely reception of the good from the railway station. They are given a railway receipt (RR) which helps them to track the materials. The whole system is integrated using SAP.

The functioning of the CFA team can be briefly explained in following steps:

 1. Receive material from the Cement manufacturing Unit via rail or road (Goods in Mumbai come via Railways)

2. A Sales order (SO) is prepared by the customer using an online portal.

3. Based on this SO, a Delivery Order is prepared. On the basis of this DO a delivery Challan is given according to which the goods are transferred to the required customer.

 4. A commercial invoice is prepared based on this on the following day. The material is dispatched based on this invoice.

To ensure smooth arrival and uplifting of the goods at railway, a fine is charged for not unloading the material on time, which is called Demurrage (delay in unloading from the wagon) and wharfage (delay in removing from the yard)

Transaction System

 At the end of every month, the company sends two files to its customers: Customer Ledger and Confirmation Balance. The purpose of this initiative is to avoid confusion and errors. The customer gets a chance to tally his accounts sheet with that of the company.

 Customer Ledger is a sheet which includes the purchases and sales made. The debit side of the customer ledger shows the billing made by the company or the purchased made by the customer during the month and also shows short billing if any. The Credit side of the customer ledger shows, le the payment received from the customer and discounts credited. It is the statement of account containing the opening balance and closing balance and the total quantity supplied for the particular month. Refer to the Annexure for a sample of Customer Ledger sheet.

Confirmation balance sheet is sent to the customers to inform them about the pending payments and overdue. Also the customer has to check for any error in the sheet and inform the company immediately. This helps build a transparent relationship between the company and its customers. Annexure shows the structure of Confirmation balance sheet provided by ACC.

Taxation System at ACC

Tax is imposed on all transactions, purchase and sales of the firm. Here we discuss the process of taxation at ACC for each of its customers – Traders, Non-traders and ICI.

 When the goods are received by warehouse from the manufacturing plants, the invoice is imposed with Excise Duty on the manufactured goods. When goods are sold to the customers, it is imposed with Value added Tax or VAT. When goods are sold to the end customer directly by the manufacturing plant, the invoice becomes CF form.

Value added Tax: VAT is a multi-stage tax on goods that is levied across various stages of production and supply with credit given for tax paid at each stage of Value addition.

TAX SYSTEM FOR DEALERS

 When goods can be stored at any of the 5 warehouses located under Mumbai Region. Consider a situation where a Dealer, say D, places an order at ACC for material. A Vat will be imposed on the invoice which the seller has to collect. In the balance sheet, total amount is debited from customer account and the breakdown is credited to the sales and Vat account. The VAT amount is then debited from VAT account and credited to the bank. In this case the seller is ACC and buyer is dealer D.

 Thus given below is the structure of the invoice for bill amount Rs. 500:

ACC INVOICE

Base value

VAT (@12.5%)

Total Rs.437.5

Rs62.5

-------------------------

Rs500

Now when D sells it to a customer, say C, he has to collect the VAT applicable on the goods. In this case d is the seller and C is the buyer. Suppose D sells it at a Rs.510 with a profit of Rs.10

The invoice structure is as shown:

DEALER INVOICE

Base value

VAT (@12.5%)

Total Rs.446.25

Rs63.75

-------------------------

Rs510

So the total VAT collected is Rs.63.75 by D. However, ACC has already paid Rs.62.5 as VAT to the central government. Hence, D will have to pay only Rs.1.25 to the government. A VAT number is required for this.

 Now if the goods are delivered to the end customer from the Chanda or Wadi plant directly, CF form comes in application. For examples, say in an interstate transaction, material has been ordered from Karnataka plant at Wadi by dealer D. in this case a CST of 2% is levied upon the buyer. The invoice for material costing Rs.437.5 (as taken in previous case) will look like:

ACC INVOICE

Base value

CST (@2%)

Total Rs.437.5

Rs8.75

-------------------------

Rs446.25

When D sells it to the end customer C, he has to collect a VAT of Rs.55.78 from the customer. His total amount becomes Rs 502.03. But he is selling it to the customer at Rs.510. So the dealer D will be at a profit here of Rs 7.97.

DEALER INVOICE

Base value

VAT (@12.5%)

Total Rs.446.25

Rs55.78

-------------------------

Rs502.03

It is thus advised to the dealers to buy from manufacturing plant.

TAX SYSTEM FOR NON-TRADERS

Non-Traders include medium buyers and ICI customers. They are supported by Canvassing Agents and Del Crederes.

In case of Canvassing agents, the customers are given CF form where CST is imposed in the same way as above. This method is beneficial for such direct customers. They place bulk orders which are delivered from the manufacturing plants- Chanda and/or Wadi. The invoice structure for a non-traded supported by Canvassing agent is as follows:

ACC INVOICE

Base value

CST (@2%)

Total Rs.600

Rs12

-------------------------

Rs.612

In case of Del Crederes, the taxation system is simple and follows the same procedure as above.

Price Mechanism

The everyday price of cement in the market is monitored by Sales officer posted in the respective market and they collect competitive brands rate like whole sale price and Retail price of own brand and other brands also and arrive ruling price in the market and capture the same in to the CRM tool provided for the above purpose.

 Based on this information, SH will take suitable call to increase /decrease the price and recommend the same for DS approval for up-loading in system.

 It is very important to change the price according to the demand and supply in the market, keeping in view the competition from other cement manufacturers. Correct pricing will improve the sales and to record correct price, which will improve profit margin of the Dealer as well as to the Organization.

Price drop or price raise decision are taken by Sales Head and forwarded to the DS for approval. On receiving the approval, the Sales Analyst Team updates the information on price master. This price is used to prepare the invoice for the customer.

 A CRM mechanism is used for monitoring the prices. It operates on the feedback received from the dealers and the pricing of the competitive firm. The difference in the billing price and selling price is reduced using ‘Price equalisation' as a security for the dealers. This assures the dealer in situations where he has to sell at a market price which is different from his cost price.

INTRODUCTION TO DEBTOR MANAGEMENT

The project deals with “Debtor Management” with reference to the study of “ACC Limited” Mumbai Region. ACC has a stringent policy for managing its debtors. Management of outstanding is one of the important aspects of the company. Hence, there is a team which looks after the receivables by sending timely reminders to the customers and initiating innovative methods to encourage proper payments.

 With the increasing domestics and international competition the company has to sell its goods for credit. This results in high debtors. The firm has a pre-decided credit limit for each customer reduce bad debts and encourage discipline amongst the customers.

What is Account Receivable?

 Accounts receivable deals with the billing of customer who owes money to the 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 time frame called credit period. Trade credit creates receivable / book debts, which the firm is expected to collect in near future. No interest is charged on this outstanding till it is within the credit period.

Objective of receivable management:

The objectives of this is to promote sale and increase profit of the company only till the point the return is more than the cost of financing the cost of credit.

Data Collection:

 The data used in analyzing the various policies is a secondary data. Annual reports of the company for years 2013, 2014, 2015, 2016(January to December) have been referred. Data from Sales and Finance Department of western region.

Debtor policy:

Managing the debtors for ACC Ltd. 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.

 The trade receivable  in the financial year 2015-16 was INR 468 crore and 2014-15 was  INR 484 Crore.

 ACC Sales Unit has a debtor policy which is followed universally at the firm.

 The debtor policy for company has two components:

 • Debtor Period

• Interest Rate

 DEBTOR PERIOD: It refers to the collection period. It means that the customers are given a few days to make their payment. This period is decided on the basis of the type of customer. At ACC the credit period allowed is of 30 days. However various policies are implemented to encourage early payment as well.  

INTEREST RATE: Despite the various discounts and credit period notified to the customer it is likely that they fail to pay within the stipulated period. The company policy states that such overdue is liable for a fine. As a penalty for late payment of the dues, ACC Ltd. Charges an interest on the overdue. Overdue is any bills pending for more than the credit period allotted. Also supplies to such overdue will be blocked till receipt of payment from the dealer. The current interest rate charged is 18% per annum.

 For a direct customer, amount outstanding after 30 days from the number of credit days agreed in contract with him will be considered as overdue.

Also all debtors over one year but less than 3 years are provided for. All debts over three years should be recommended for write offs. The regional finance manager recommends the write off cases along with the director sales to the Chief Executive. After the approval of CFO and MD these cases are presented to the board.

Collection Effort:

 In order to initiate faster collections and increase company profits it is necessary to take followups with customer for their outstanding. ACC had a collection team which carries out these tasks. The collection effort of sales team consists of roughly eight steps:

1. Prepare Customer wise Statement

2. Collect the Outstanding list.

 3. Identify the pending bills.

 4. Take Print outs of Bills - As duplicate copy

 5. Fix an appointment with the Customer

 6. Finalise Reconciliation with customer

 7. Collect Money.

 8. Make documents for write off proposals if required.

 Also, follow-up is taken by the team through mails, telephone, in-person meetings, reminders etc.

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 0for finding out the actual earnings and future prospects.

CASH DISCOUNT: These discounts are given to encourage the dealer to induce payment within the proved credit period. They are given on invoice on maximum slab of cash discount. It is a lucrative offer of lesser payment to the customer if he succeeds in paying within the stipulated period. It reduces working capital requirement of the concern thus reducing the receivables. The cost of the discount is balanced against the savings the company receives from having less capital tied up due to a lower receivables balance and a shorter average collection period.

CD scheme of ACC is as given in the table:

Payment in    Amount

Advance    Rs.3/Bag

3 Days      Rs.2.5/Bag

7 Days      Rs.2/Bag

10 Days      Rs.1.5/Bag

15 Days      Rs.1/Bag

Cash discount scheme considers date of pay-in-slip of payment of banked by warehouse as the date of payment for calculating the applicable credit period for eligibility of CD.

 In the Mumbai region, cash discount of Rs.4 per bag is given if the payment is done within 3 days. This has increased the number of sales for the region.

 SHORT TERM DISCOUNTS

They are aimed to boost sales volumes during low periods. They are approved by the Director sales based on recommendation of SU head. Cash discounts, PE etc. are included in short term discounts.

LONG TERM DISCOUNTS:

 These are performance based discounts over time frame of 3months, 6 months, one year and PD dealer scheme. They will be recommended by SU head and approved by Director Sales. Long discounts mainly consists of annual discounts to the dealers. It is based on the monthly lifting process. The performance if tracked every quarter. There are long term discounts allowed for authorised retailers as well based on the PD schemes.

 I.M. Pandey has cited three Cs of credit termed as character, capacity and condition that estimate the likelihood of default and its effect on the firms\' management credit standards. Two more Cs has been added to the three Cs of I.M. Pandey, namely; capital and collateral.

 Setting Credit Limit

ACC follows two steps to decide the credit limit:

 • Credit Assessment of Customers

• Setting credit limits

 The company evaluates credit worthiness of customers on basis of following factors:

• Security Deposit

• Defaults in payment in terms of numbers and value

• Credit block due to overdue

 • Consistency in sales vs. targets over a period of 1 year.

 • Dealer relationship

The Process

Different weightage is given to the evaluation parameters depending on their seriousness. Each parameter is divided into sub-parameters which have different weights again. Using this process flow, there are multiple scenarios which arise. Each scenario thus has a weightage. These weights of all parameters are added and are used to decide the credit limit. This limit is reviewed every quarter at ACC.

Say this is the assessment figure (A). To set the dealer's credit limit,

 New Dealer's Limit = 2*A – but not exceeding the limit dealer gets from the banker.

Existing Dealer's Limit = 3* A- but not exceeding the limit dealer gets from the banker.

 There is another way to set the credit limit where customers are divided into three categories: A,B,C. for A type, credit limit is INR 10 Crore, for B type the credit limit is INR 5crore and INR 1 crore for type C customers.

 For approval above the credit limit mentioned, a matrix is followed by the company. The credit block can be released by Commercial manager or regional credit controller.

It is important to note that for Dealers, the maximum credit permitted is same as the security deposit for initial 6 months. The company is at no risk position and in case the dealer defaults, firm recovers its money from the deposit. After these 6 months, the maximum credit permitted is raised 3 times the security deposit.

 Credit limit for Non Trader

 The non-trader's credit limit is decided on the basis of the insurance given by the Del Credere. In case the customer does not pay on time, the Del Credere has to make the required payment. This amount is refunded once the customer pays. If the non-trader does not pay, the Del Credere is given the amount with 30% interest. The policy helps the company to discover bad debts and ensure immediate finance.

 Credit limit for ICI customer

The credit limit for ICI customers is set in two ways. One is the limit given by Del Credere which is the same as non – trader. Credit limit also depend on the Letter of Credit and bank guarantee. In such cases the unit has every day tracker for bank guarantee to minimise losses. Second method to set the credit limit is through third party assessment. In this, a team does a market assessment of the customer firm and studies its market value. Based on this research the company sets a credit limit for the ICI customer.

Alert system

The firm has an alert system implemented in CRM to send out reminders and warnings to the customers regarding their credit limit. The communication is done in a predefined format. Since the customer knows his credit number of days and credit limit granted, he is expected to pay within the allocated time. The supplies are stopped if the payment if not done even after a month of alert mails.

Tools Used

The following are the financial tools used for analysis and interpretation of this study which is based on receivables management.

 Ratio analysis tools used here are

1. Liquidity

    a) Current ratio

    b) Quick ratio

2. Net working capital to sales ratio

3. Profitability

   a. Gross profit margin

    b. Net profit margin

4. Activity

    a. inventory turnover ratio

    b. accounts receivable turnover ratio

    c. average collection period

Trend Analysis of Sales(From 2012-2016)

Financial Year 2012-2013 2013-2014 2014-2015 2015-2016

Net Sales

(RS in CRORE INR) 10,889 11,481 11,433 10,936

 

Analysis:

 The graph shows that there was an increase in sales revenue in year 2013-2014. However the revenue dropped in the financial year 2014-2015 and 2015-2016.The sales decreased due to increased competition in cement industry.

Changes in Trade Receivables (From FY 2013-2016)

Financial Year 2012-2013 2013-2014 2014-2015 2015-2016

Trade Receivables (RS in CRORE INR) 468 484 411 397

Analysis:

 Trade Receivables means the amount outstanding at a given time. Less receivables means more profit for the company. The debts at ACC have increased during the period given. It was Rs. 397 Crore in 2013 and rose to Rs. 468 Crore in 2016. One of the reasons for this trend in receivables is increase in trade and non-trade customers.

Average Collection Period (From 2012-2016)

Financial Year 2012-2013 2013-2014 2014-2015 2015-2016

Average Collection Period

(IN DAYS) 4.59 5.7 4.91 5.23

Analysis:

Collection period is the time elapsed between sales made and payment is done. The lesser the period the better it is. As observed from the above graph the average collection period has increased over the years.

Current Technical Situation

 ACC has implemented SAP software for automated and integrated inventory and receivable management. The aim was to reduced losses due to bad debts, sales outstanding, overdue. It is useful in setting the credit limit, managing them and monitoring risk of losses. The whole process is automated and thus reduces the processing time and effort. With the Sap software, SU employees can record and manage accounts for all customers. They are integrated with logistics and sales data. It also integrates billing and invoice process with cash management, accounts receivables and dispute resolutions. Sap Software also allows the SU to evaluate, and prioritize the collection calls and account. A copy of bills and statement is sent to each customer every month.

 Advantages of implementing SAP are as follows:

 • Reduce sale

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