07 ways of Forecasting and Management of Export Trade Debtors

Export Trade Debtors

There is no doubt in this thing that most of the activities of the business revolve around finance. It works like a fuel in every process of the organization. It doesn’t matter that a business is enjoying the optimum level of growth. Or on the other hand it is facing the severe financial crunch. In both phases, a business can’t avoid the usage of finance. That’s why; every local/export organization is really curios about the inflow and outflow of its finance. The finance people always try to smooth the cash flow by arranging finance from every nook and corner. The trade debtor is also one of the big sources where a huge amount of finance can be arranged. The export trade debtors arise when you make credit sales outside the country. This credit sale is normally pay through L/C (Letter of Credit) or TT (Telegraphic transfers).

If you are having exports through L/C, then it is normally considered a secure mode of payment. In this mode of payment, the consignee and consignor are gridlocked with each other. And in case of any misfortune, the Consignee’s bank makes payment of imported goods to consignor. But if the mode of payment through TT then there is no mediator involves in between the consignee and consignor. So, in case of any dispute or insolvency of consignee, no one can make payment.

Every business requires working capital to move on the business flow. And that can only be possible if the customer makes payment on-time. If you get timely sales receipt in your hands. Then you can easily forecast the trade receivable through strong follow-ups with your customers. Business operations usually get halt if the supply of working capital cuts off. Therefore, managing trade receivable is highly important matter in the world of trade.

Forecasting Export Trade Debtors:

When the goods are exported, an invoice is normally generated which shows complete information about shipment. It includes: the consignee’s name, Purchase Order number, Article Number, Quantity, Unit price, Gross amount and the terms of credit.  Out of which, the terms of credit tells how long it takes to get payment from customer. So, we can say that the credit term is basically helps to forecast the trade receivable. Trade receivable payment date and days are normally calculated from the BL (Bill of lading) issuance date. (“Bill of lading” is a certificate issue by captain of ship to the consignor confirming that goods are on board and ready to sail”.)

To forecast the receivable, first we have to add shipping line’s loading plan date on ship. This plan is also called CLP (Container loading plan).  So, the easy way of forecasting is to calculate the days from CLP date and add credit term days into this. For example, let’s say if the invoice date is 13th September 2018 and the CLP date is 21 Sep 2018. Whereas, the credit term for instance is “20 days from BL date”. Then, the estimated payment date would be 11th October 2018.

Other than the above credit terms, the DA (Documents acceptance) or CAD (Cash against documents) are also frequently using in export business. In this mode of payment, the consignee’s bank release payment as soon as it receives the documents. The credit terms normally varies from customer to customer. The shorter credit terms are considered prudent way of managing Trade debtors. By forecasting preliminary payment invoice date you can effectively produce budgeted cash flow showing the inflow and outflow of cash.

Management of Export Trade debtors

Once you have decided the forecasting of maturity date for debtors. Then the next step is to    manage and ensure that business has sufficient working capital to reinvest and growth. Therefore, business needs to pay great amount of attention on the management of export trade debtors. The following are some techniques which are frequently using for managing the export trade debtors well.

Establishing Credit Terms Policy:

Credit term policy is normally established on the basis of credit check report which shows customer payment history. If credit check report states that it’s risky to give credit to the customer then you don’t just ignore it. Or neither, you can stop doing business activities with him/her. But on the other hand, you can robust your sale terms instead of stopping business with them. You can go for CAD – (Cash against documents) or COD (Cash on delivery) when goods are on board. If credit check shows that customer is worthy of doing business on credit. Even then the credit term rules say that don’t set a lenient credit terms of sale. And you should have a prudent sales policy with respect to credit terms.

The best way to establish credit policy is to follow your supplier’s credit terms policy with your clients. If your suppliers are offering tight credit terms then your business should also have tight credit term policy towards customer. And it must be continued until or unless the company is enriched by cash.

Regular Credit Check:

Regular credit check is also an effective technique for managing the export trade debtors. You can also take help from the credit check agencies who maintain the credit check on customer payment history. A regular credit check is really compulsory on credit worthiness of customer’s business. As this practice ensures this thing that trade debtors wouldn’t become bad debts (In case customer goes bankrupt). This credit check practice should be done for both existing and as well as for new customers. This check and balance really supports businesses to manage the export trade debtors well.

Offer Early Payment Discounts

If a business gets cash from its customer a bit earlier from the committed date. Then it could definitely create a positive impact towards the healthy activities of business. This is why, the business people normally follows various techniques to get early cash.  They offer small amount of discount for those clients who make pay early than the agreed date. This thing can motivate the customer to pay the credit as early as possible. So, that he/she could avail the discount opportunity. It is observed that customer takes discount positively and hardly forego the opportunity. Early payment input finance into running working capital which can smooth the business flow too.

Outsource Trade Debtor Management:

Managing export trade debtor internally is a cumbersome process and uses a lot of resources. Therefore, companies prefer to hire trade debtor management servicing company. As these companies helps to manage the trade debtors with some management fee on collection of debtor. By outsourcing the credit control function you can avoid the cost of credit control function.

Invoice Factoring:

Factoring of invoicing or debtor financing is another prompt or efficient way of managing export trade debtors. In factoring, the company sells its debtor to the third party on discount price. And these companies in-return gives finance to the company after deducting the factoring fee. But this way doesn’t leave a good impression about the clients. As they perceive that the company’s financial position is not strong or facing financial crunch phase.

Invoice Discounting

Invoice discounting is another way of managing debtors. In this way, the company sells invoice to bank or lending company. The bank or lending companies give funds to the company after deducting lending fee. The lender usually pays in full when customer makes the payment of the particular invoices.

Customer’s Supplier Portal

Most of the customers now have ERP – efficient resource planning supplier portal through which supplier can upload invoices electronically. The portal is connected to the shipping lines or forwarders of goods. And they provide declarations when they receive the goods after which maturity date triggers on the portal then. Export trade debtors can be managed easily because supplier portal provides maturity date along with the detail of payment showing the invoice number and value.

In the end, we can say that by designing proper credit sale policy debtors can be managed successfully. Having right strategy for managing export trade debtors improves the working capital position which eventually increases profitability and cash for company.

export trade debtors

How ERP System (Oracle) Facilitates Companies in Auditing Process

How ERP System (Oracle) Facilitates Companies in Auditing Process

Technology is now playing a pivotal role in our day to day life matters. There is no doubt in it that usage of technology makes our life not only easy but more productive too. We can now handle multiple tasks at the same time which were not possible in the past. If we talk about oracle software (ERP system) then it’s also one of those inventions which gave us relieve and productivity in our daily work life. An oracle software is extensively using in most of the manufacturing and services industries.

The textile industry is also one of those industries which are getting multiple benefits from this technology. As it’s not only fulfilling the needs of finance but along-with that it’s also performing productive functions of accounting too. In general, if we closely look into the broader prospects of ERP system. Then it covers recording, summarizing and interpreting of accounting and finance data into more precise and efficient manner.

Why We Need ERP System (Oracle)?

The beauty of ERP system is that even an ordinary user can easily understand it within no time. And if we talk about the cost of ERP system then there is no doubt in it that it’s a bit high. But when we compare it with its benefits then it outweigh the cost from all aspects. Most of the big textile firms have their own internal audit functions due to the magnitude of financial transactions. Internal audit department uses different tools to carries out the audit of finance and accounting function. And this could only be fruitful if company uses highly integrated software system. The technology which is not only helps to summarize the data within no time. Along with that the authenticity of the summary/result could not be challenged anywhere.

ERP system makes life easier for auditors as it provides the best solution for auditing of financial and accounting transaction. Since the big organization’s transaction magnitude is so huge. So, the small or less integrated software cannot give the ultimate results in terms of speed and accuracy.

The usage and importance of technology varies company to company. In public limited companies, where people have invested their life savings in shape of investment in shares. So, being investors, they expect accurate, transparent financial position of the company time by time. The external auditors are normally hired by the shareholders to know the exact position of the company. These auditors have task to provide their opinion on the financial data of the company. If the company uses oracle then it makes it easier for external auditor to form their opinion on the financial data. Since there is no question about the accuracy and functionality of this highly sophisticated technology. So, the required outcome is normally obtained without any hassle.

Internal Audit of Purchases through ERP System:

The progress of company normally matters on different factors. A good marketing and production team cannot assure this thing that a company will progress. The financial and purchasing departments are also equally responsible for getting positive outcome. And for a company, the outflow of money equally concern as inflow of money. Because if you don’t have any appropriate check and balance on your financial activities. Then the efficiency of your sales and production teams couldn’t drag the organization on the way of progress. The ERP system didn’t ignore this important aspect too and it also efficiently manages the outflow payables of the organization.

Purchases Audit in Textile Company:

In order to know the in-depth of ERP system, we have to review the complete procedure that how it works in an organization. Let’s take the example of  Textile Company where most of expenses are on material requisition. When an audit of purchases carries out, you need to make sure that you have access to all modules in ERP. And it includes: Purchase requisition (PR), Purchase order (PO), Inward gate pass (IGP), Goods receipt note (GRN), Purchase Invoice (PI) and Purchase invoice voucher (PIV). Once you have complete access on these modules then it will really helpful to view the whole trail of transactions. Auditing these modules shall help to make opinion whether the purchases acquired through systematic procedure.

The purpose of purchase audit is to ensure that expenditures on purchases are actually for the use of the business. Further, we need to check this thing that all the materials are purchased according to agreed cost and units. In some firms, this audit is also called as reverse costing which gives the management about the clear picture of order after dispatch.

Where to Start?

The auditor normally starts with purchase order which is actually a main reason of every activity of order processing. After having the purchase order, he needs to the see all the purchase requisitions which were raised during order processing. And these are mainly includes; fabric requisition, accessories and trims requisitions etc. The purchase requisitions (PR) normally issued by marketing department who is responsible for delivery of goods to Customer. All the PRs normally signed by authorize person of department. The main motive for auditing the PRs is to check whether quantity and cost is in accordance with agreed value.

Purchase Order:

Once purchase requisitions are audited then the auditor normally moves on to Purchase department’s purchase orders. These purchase orders are normally issued against the purchase requisitions by the marketing department. While auditing purchase orders, the auditor is more curious about the quantity and unit price of the material. As these two things must be approved by the authorized person of the top management. All the purchase orders normally have an authorization person’s name on it. The good thing about ERP is that Purchase department’s POs fetches data from PRs. If there is no purchase requisition then no purchase order can be generated. So, the probability of extra or useless buying is not possible if you are using ERP system. But here the auditor normally reconfirms the quantities which are fetches from purchase requisitions.

Inward Gate Pass: 

Inward gate pass (IGP) is normally formed when goods arrived into production facility.  The IGP only signifies the date and time of arrival of goods against specific purchase order. It also shows the total quantity received against PO though. IGP is a proof of a delivery arrival which normally confirms that goods are delivered against specific PO. As the purchase order number is normally mentioned on the IGP. The Auditor normally needs to cross check the quantities of IGP with respect to its generated purchase order. In ERP system, IGP fetches data from purchase order so that each every received unit is checked under the light of demand paper.

Goods Receipt Note:

Goods receipt note is normally created when store & inventory department counted the material quantity. During Audit, the auditor checks the GRN to ensure that it has relevant PO, Quantity, Unit price. Further, he also checks this thing that all the documents are duly signed by the authority that controls the Store & inventory department. ERP integrates GRN with PO and IGP. So, GRN cannot be prepared until or unless the approvals of purchase order.

Invoice Posting:

The auditor needs to reconfirm whether the invoice posting against the PI is correct. Whether, it has proper tax rates, net values traces back to GRN and PO? If these are correct then make sure that PIV prepared on the basis of the whole data correct also. PIV had the correct nominal account in debit side with corresponding credit side. i.e. Purchases and Trade creditors. All these checks is normally performs within no time while using ERP system. Since, the integration of all document into one system can make this thing possible to compare and check value easily.

Opinion: 

An appropriate opinion can be made when an efficient audit is carried out through ERP which integrates each purchasing activity from purchase requisition to stock stacking. Although cost of implementation and maintenance of Oracle is high but the benefits are long lasting from every aspect.

 

ERP system