A Portfolio Management Approach in Accounts Receivable Management

Journal South East European Journal of Economics and Business, Vol. 3, No. 2, pp. 89-96, November 2008

8 Pages Posted: 13 May 2011

See all articles by Grzegorz Michalski

Grzegorz Michalski

Uniwersytet Ekonomiczny we Wrocławiu - Faculty of Engineering and Economics

Date Written: November 11, 2008

Abstract

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: Accounts Receivable, Trade Credit Management, Incremental Analysis, Value Based Management, Portfolio Analysis

JEL Classification: G32, G11, M11, D81, O16, P33, P34

Suggested Citation

Michalski, Grzegorz, A Portfolio Management Approach in Accounts Receivable Management (November 11, 2008). Journal South East European Journal of Economics and Business, Vol. 3, No. 2, pp. 89-96, November 2008 . Available at SSRN: https://ssrn.com/abstract=1838842

Grzegorz Michalski (Contact Author)

Uniwersytet Ekonomiczny we Wrocławiu - Faculty of Engineering and Economics ( email )

ul. Komandorska 118-120
Wroclaw, 53-345
Poland

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