Financial Accounts Receivable - Overdue
Analysis
1. Analysis background introduction
This case comes from a large agricultural
enterprise in China, which is mainly engaged in the planting, processing, sales
and agricultural-related technical services of agricultural products. The
company's core business includes the cultivation of food crops, fruits and
vegetables and economic crops. At the same time, it is involved in modern
agricultural science and technology, providing agricultural machinery, seeds,
fertilizers and other agricultural inputs.
Of agricultural enterprisesAccounts
receivable management is different from other industries, especially because
agricultural production is seasonal, cyclical and regional. The sales of
agricultural products may be concentrated in certain seasons. Customers (such
as farmers, dealers, supermarkets, etc.) generate accounts during the sales
cycle of agricultural products, but the return cycle of funds is long.
Therefore, overdue accounts are a common phenomenon in the agricultural
industry.
The customer groups of agricultural
enterprises include farmers, distributors and retailers. The credit capacity of
these customers is uneven, especially farmers and small and medium-sized
dealers. The capital chain is relatively fragile and prone to overdue payments.
2. Statement of key issues
Challenges faced by enterprises:
The proportion of overdue accounts is
relatively high., the overdue part of accounts
receivable has increased significantly, monitoring some customers' long-term
arrears of payment, and even the risk of potential bad debts.
There is a problem with capital turnover
in the company.Overdue accounts affect the cash
flow of enterprises, especially the seasonal sales of agricultural products.
The company needs a large amount of liquidity to support business development
after the harvest season. Overdue accounts prolong the return cycle of funds,
and it is necessary to focus on customers with relatively large overdue
amounts.
Customer credit management is very
difficult.. The huge customer group, especially the
imperfect credit assessment of some small and medium-sized customers, makes it
difficult to control credit risks.
3. Analyze the plan
In response to the above analysis goals, we
take the following actions:
3.1 Determine key indicators to ensure the
quality of data and the source financial system.
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Serial number
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Name of the indicator
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Paraphrase
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Analysis angle
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1
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Total amount of accounts receivable
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The total amount of accounts receivable =
the sum of the outstanding accounts of each customer, which represents the
amount that the customer has not paid to the enterprise.
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A high total amount of accounts
receivable may indicate that the credit policy of the enterprise is
relatively relaxed, which may lead to capital liquidity problems.
Analyzing the historical trend of total
accounts receivable can help judge the performance of enterprises in credit
sales and cash flow management.
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2
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Overdue accounts
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Overdue accounts = the total amount of
accounts receivable that exceed the specified payment period is the source of
potential bad debt risks faced by enterprises.
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The high proportion of overdue accounts
means that the return of funds of the enterprise is not smooth, which may
affect the daily operation of the enterprise.
The analysis of overdue accounts needs to
be decomposed by customer, region or age in order to identify high-risk
customers or regions.
The changing trend of overdue accounts
can also reflect the effectiveness of enterprises in collection management.
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3
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Overdue days
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Overdue days = current date -Due date of
payables, the number of overdue days refers to the length of time the account
exceeds the credit period, which is usually used to measure the difficulty of
account recovery and the risk of bad debts.
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The longer the overdue days, the less
likely it is to be recovered. Therefore, it is necessary to formulate
different collection strategies according to accounts with different overdue
days.
Through the distribution analysis of
overdue days, we can understand the efficiency of account recovery and
identify accounts that are difficult to recover.
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4
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Collection target (business provision)
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Collection target = the estimated refund
amount provided by the business department
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This indicator can be compared with the
actual collection results to evaluate the ability of the business department
to predict the market, customers and refunds.
If the collection target is too high or
too low, it may affect the capital plan and budget arrangement of the
enterprise, so it needs to be set reasonably in combination with the
historical refund data.
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5
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Forecast accounts receivable
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Forecast accounts receivable = days
receivable × sales revenue ÷ 365 days
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Predicting accounts receivable is an
enterprise's forecast of future accounts receivable amount based on
historical data and current sales situation, which is often used for
financial budget and cash flow management. If the forecast value deviates too
much from the actual accounts receivable, it may indicate that the enterprise
has problems with credit policy or customer management and needs to adjust
the strategy.
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6
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Number of days receivable
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Days receivable = (total amount
receivable ÷ sales revenue) × 365
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The shorter the number of days
receivable, the faster the recovery of the enterprise's accounts and the
higher the efficiency of capital turnover. The number of receivable days
varies greatly from different industries, which usually need to be compared with
the industry average.
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7
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Sales revenue
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Sales revenue = sales unit price × sales
quantity
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The growth of sales revenue is usually
accompanied by the growth of accounts receivable, so it is necessary to
analyze the relationship between sales revenue and accounts receivable at the
same time.
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Description: The indicators selected in
this case are common indicators in analysis. In the analysis workPriority
should be given to the indicators that have the greatest impact on the business
to ensure that the purpose of the analysis is consistent with the business
objectives and key performance.
3.2 Power BI Visualization Scheme
Note: The DEMO page data is simulated data,
which is for reference only to the analysis angle and Power BI function
display, and does not involve any actual business data.
4. Analysis and interpretation
The proportion of overdue accounts in
different age periods:
Short-term overdue (within 30 days) is
usually a relatively common and easy-to-recovery part. If the proportion of
such overdues is high, it means that the customer payment capacity of the
enterprise is generally good, and the collection mechanism is relatively
effective.
Medium and long-term overdue (more than 60
days) indicates that the customer's repayment difficulties increase and the
risk of refund increases.This part of overdue accounts usually requires more
attention and may involve the need for legal measures or more collection
resources.
Overdue of more than 181 days means that
the account is very likely to become bad debts, and enterprises may need to
prepare bad debt reserves or consider write-downs.
Changes in the trend of accounts
receivable
If the accounts receivable shows an upward
trend and sales revenue does not grow in the same proportion, it means that the
enterprise's funds are more locked in the accounts receivable, which may mean a
decrease in collection efficiency.
If the accounts receivable declines, it
indicates that the recovery of the enterprise's accounts has improved and the
return of funds has accelerated.
Combined with accounts receivableThe target
of payment and collection, predict the change of the ratio of collection, and
assess whether there is any deviation in the implementation of the enterprise's
credit policy.
Customer's overdue ranking
The overdue amount of the first few
customers usually accounts for most of the overall overdue accounts, and
priority should be given to following up the account recovery of these
customers.
If overdue accounts are concentrated in a
small number of large customers, special collection strategies need to be
formulated for these customers, such as shortening the account period,
adjusting the credit limit or requesting advance payment.
Through the ranking of customer overdue, it
can also help enterprises identify high-risk customers, further improve the
credit assessment system, and avoid future account risks.
5. Application effect
Improve the liquidity of funds:These modules can help enterprises better understand the current
situation of accounts receivable, take effective collection measures in a
timely manner, and ensure the smooth recovery of accounts, so as to improve the
efficiency of capital turnover.
Reduce the risk of bad debt: Through in-depth analysis of overdue accounts, enterprises can
find potential bad debt risks earlier and take countermeasures in advance to
avoid capital losses.
Optimize credit management:Based on the analysis results, enterprises can continuously optimize
credit policies and customer management strategies, so as to reduce the
occurrence of overdue and bad debts in the future.
Auxiliary decision-making:The analysis of accounts receivable can provide important reference
data for the financial and business decisions of enterprises and help
management make more rational and scientific decisions.
In general, through the application of
these analysis modules, enterprises can not only improve the efficiency of
financial management, but also achieve comprehensive optimization in customer
management, sales strategy and cash flow control.