Current asset management in the enterprise

Figure 3.2.3. Principles of management of accounts receivable

The final stage of designing the management system is the development of accounts receivable its organizational and functional structure (Fig. 3.2.4). This scheme regulates the functional interaction between the structural subdivisions of enterprises directly involved in the occurrence and continuous control of accounts receivable, including overdue. In this case, such a control scheme does not require the introduction of additional staffing and involves the use of its own staff. Formed out of It committee on management of accounts receivable is permanent, it is an advisory body with functional responsibilities for development of managerial decisions, which meets at regular intervals. Developed by the Commission decisions are made and controlled by the Deputy Director General for Economy and Finance.
Figure 3.2.4. The organizational structure of accounts receivable management in the enterprise

3.3. Implementing the components associated with payment of goods sold to the motivating system of managers.
It is proposed to implement the following policy of receivables management:
Bonuses are aimed at strengthening the material interest and increase employees' responsibility to improve the performance of the company. The main criterion for assessing employee’s performance is the fulfillment of individual sales plan is established by parish funds.

• 
  Employees are eligible for current bonuses under the following conditions:
  

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  Fulfillment of the annual individual sales plan by more than 100%;
  
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  Reducing the value of accounts receivable;
  
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  Reducing the value of accounts payable for the supply of products, goods, works and services;
  
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  The observance of labor discipline;
  
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  Compliance with the requirements of the job, labor law, requirements for the protection and safety.
  

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  Lump-sum bonus payment can be made:
  

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  For qualitative and timely execution of critical tasks, and especially urgent work, occasional task of leadership;
  
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  On the basis of a successful employee performance.
  

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  The size of the current premiums is determined by the coefficient for the calculation of premiums:
  

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  0.0033 - for calculating premiums in the performance of individual sales plan within the more than 100% to 150%;
  
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  0.0066 - for calculating premiums in the performance of individual sales plan from 150% to 200%;
  
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  0.01 - for calculating premiums in the performance of individual sales plan of more than 200%.
  

Current premiums are charged to employees in accordance with the personal result of work of each employee as follows:

(AFP-P)*k – CP, (3.3.1)
where:
AFP – actual sales plan fulfillment
P – individual sales plan
k – coefficient for premium calculation
CP – current premium accrued since the beginning of the year
Proposed policy can help the company to decrease its accounts receivable.

3.4. Conducting an interview with a competent specialist

In order to get a competent opinion an interview with finance director of SPETSSTROY-SVYAZ Ltd., Victoria Ivanilova, was conducted. She has been working in the company for more than 7 years starting from an accountant position.

1. 
   How do you assess the financial condition of the company?
   

After the crisis of 2008, in my opinion, the economy is still at a low level. Orders of government and departmental enterprises and organizations, our main customers, have decreased. Furthermore creditworthiness of all customers has dropped significantly. In 2011, we have not yet reached the level of 2008 and even 2007 in sales. During the 2010 financial state of the enterprise deteriorated even compared with 2009.

2. 
   Have the similar measures to reduce the accounts receivable been conducted before?
   

The company has attempted to reduce receivables, but in other ways, by offering leasing schemes, by working with our customers by security of the enterprise. Unfortunately, these measures have not brought significant results. Among the financiers of customers, unfortunately, there are few professionals who can appreciate the leasing operations. Employees of departments and state enterprises are "tied" to corporate foundations. In such organizations, even insignificant change in the form of contract is very problematic. However, they realize that sue to recover the debt is not in the interests of the supplier, because there is a high probability that this company will lose other orders from these contractors.

3. 
   What are the problems regarding current assets faced by the industry?
   

Firstly, businesses that develop equipment of wire communication lose customers, not only because of the active market entry of services of mobile operators, but also because of the active "recommendations "of the Russian government for the similar equipment of European manufacturers, which is not always justified by the quality of their products.
Secondly, Russia produces very few components that meet modern requirements (e.g., chips at various levels).
Thirdly, regulatory framework that determines the equipment requirements for wire communication, as well as the quality management system is often interpreted by each department in its own way, and as a consequence, we are forced to incur substantial expenses. Thus there is no guarantee that these costs will be paid back.

4. 
   What are your predictions for the financial condition of the enterprise for the next year or two?
   

The company today maintains an active policy to diversify the portfolio of sales, to reduce accounts receivable and enters the regime of austerity. So I hope that by 2013 the company will come out of crisis.

Conclusion

Current assets are assets that serve the process of current economic activity, while participating in the production and selling processes. The main purpose of current assets is ensuring the continuity and rhythm of the production and turnover. Due to rapidly changing market conditions companies have to change their policies toward current assets management, optimizing its structure and volume, increasing turnover and searching for additional reserves of their efficiency.

Nowadays, Russian telecommunication equipment market suffers because of high competition both in internal and external. Furthermore, producers face a lot of problems with payments of accounts receivable.
In this paper there was conducted a field research of financial performance of a specific example of Russian telecommunication equipment producer. There were used such methods as financial ratios analysis and mathematical statistical analysis. Furthermore there was conducted an interview to the company’s finance director, Victoria Ivanilova. The findings obtained in the course of the research show that the crisis has strongly affected the performance of SPETSSTROY-SVYAZ. The company’s main customers, governmental and departmental entities, have decreased their consumption. Other clients also do not represent high creditworthiness. Most of SPETSSTROY-SVYAZ’s accounts receivable is overdue. Thus the company cannot use its money for production and development what makes a vicious circuit. There has been made several attempts to improve the situation with accounts receivable, but, unfortunately, due to the peculiarities of the enterprise’s clients, these attempts have not brought much effect.
In this paper the following recommendations for improving company’s liquidity were given: to create a payment calendar in order to align and synchronize cash inflows and outflows by time periods, to speed up the cash flows. Also, there was proposed a model for receivables management, which could help to reduce the time of repayment. Besides these financial measures there was proposed a managerial one – a bonus policy. According to this policy, sales managers would get bonuses regarding their plan fulfillment. It is important, that managers’ performance is to be measured by money inflows. This policy is to increase the employees’ involvement in company’s economic activity.