A Portfolio Management Approach in Accounts Receivable Management

• Authors: Grzegorz Michalski
• Languages of publication: EN

Abstracts

EN

The basic financial purpose of an enterprise is the maximization of its value. Trade credit management should also contribute to the realization of this fundamental aim. Many of the current asset management models that are found in financial management literature assume book profit maximization as the basic financial purpose. These book profit-based models could be lacking in what relates to another aim (i.e., maximization of enterprise value). The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences that can result from an operating risk that is related to purchasers using payment postponement for goods and/or services. The present article offers a method that uses portfolio management theory to determine the level of accounts receivable in a firm. An increase in the level of accounts receivables in a firm increases both net working capital and the costs of holding and managing accounts receivables. Both of these decrease the value of the firm, but a liberal policy in accounts receivable coupled with the portfolio management approach could increase the value. Efforts to assign ways to manage these risks were also undertaken; among them, special attention was paid to adapting assumptions from portfolio theory as well as gauging the potential effect on the firm value.

Keywords

EN

Accounts receivable; Trade credit management; Incremental analysis; Value based management; Portfolio analysis

• Publisher: Sciendo
• Journal: South East European Journal of Economics and Business
• Year: 2008
• Volume: 3
• Issue: 2
• Pages: 89-96

Dates

published

2008-11-01

online

2008-12-22

Contributors

author

Grzegorz Michalski

• Wroclaw University of Economics, ul. Komandorska 118/120, pok. 704-Z, PL53-345 Wroclaw, Poland

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Identifiers

DOI

10.2478/v10033-008-0018-4