Study On The Risk Management Of Accounts Receivable

The medicine circulation industry is heavily relied on monetary funds for its survival and development, because if the funds are not sufficient enough to purchase medicines from upstream suppliers, it will become impossible for enterprises to carry out the sales activities and achieve sales revenue. However, viewing from the overall development situation of medicine circulation industry in China, there were13,000medicine enterprises characterized by "huge number, small scale and dispersion" at the beginning of2013, which resulted in fierce competition within the industry. In order to seize the market share, increase sales revenue and reduce inventory, enterprises have no alternatives but to accept sales on credit, which have generated a huge amount of accounts receivable for many medicine enterprises. These accounts receivable take up the circulating fund of enterprises, and worse still, these enterprises have ineffective risk management and credit control on receivables which may wind up having big risks and long paying time or turning into bad debts etc. The difficulty in recovering the receivables leads to the inadequate monetary funds of enterprises to further expand businesses, or even so much so that the break of capital chain brings the company to bankruptcy. Therefore, to conduct a research on the risk management of accounts receivable is of great practical importance to ensure the sustainable development of enterprises and promote the healthy development and benign operation of medicine circulation industry.The risk management research of accounts receivable involves two main aspects, credit management and risk control, on which Western developed countries have already conducted studies at a much earlier time. The development of credit management is divided into two stages, one is the classic credit management stage, the other modern credit risk management stage. The Internal Control-Integrated Framework and the Enterprise Risk Management Framework proposed by the Committee of Sponsoring Organization are the most influential research achievements on risk management in the world.On the basis of researches of credit management and risk management and relevant researches and theories on accounts receivables, this thesis draws on the approach of case study and introduces the case of Company A. In this thesis, I study the debt management practices of Company A over the year in the medicine circulation industry, integrate with the risk management approaches on accounts receivable in developed countries and the risk management status in the domestic industry, conduct analysis on facts, conclude the existing problems in the risk management on accounts receivable of Company A, and propose solutions to these problems in terms of improving internal control, optimizing credit management, implementing collection mechanism, enhancing information management level and transferring risks via financial tools.Even though this paper conducts a study and discussion on possible risks and risk causes of accounts receivable and responding measures to avoid these risks, not all risk factors have been studied and analyzed thoroughly and a feasible risk control model has not been built, due to the limitation of my knowledge and ability level.