An Integrated Model for Accounts Receivable Management

The purpose of this paper is to present an integrated model of accounts receivable. The model incorporates the major components of credit and collection policies such as the cash discount, credit period and charges for late payments. It considers the investment in accounts receivable, losses from ba...

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Bibliographic Details
Published in:Management science 1975-10, Vol.22 (2), p.212-219
Main Authors: Lieber, Zvi, Orgler, Yair E
Format: Article
Language:English
Subjects:
Accounts receivable
Bad debt
Cash discounts
Charge accounts
Collections
Credit policies
Credit policy
Customers
Discount rates
Discounts
Investment credit
Management
Optimization techniques
Payments
Present value
Variable costs
Variables
Working capital
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Summary:The purpose of this paper is to present an integrated model of accounts receivable. The model incorporates the major components of credit and collection policies such as the cash discount, credit period and charges for late payments. It considers the investment in accounts receivable, losses from bad debts and the impact of credit terms on sales. The objective is to maximize the present value of net earnings from accounts receivable. After deriving the general model, a simplified version is solved by classical optimization techniques under various sets of assumptions that are gradually relaxed.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.22.2.212