The primary objective of management of receivables should not be limited to expansion of sales but should involve maximization of overall returns on investment. So, receivables management should not be the only focus on the collection within the shortest possible period but also other possible related benefit and costs should be considered. Companies should establish clear principles with regards to trade credits which includes the following aspects (Mishra, 1973):
1. Allocation of Authority: The efficiency of a credit management in formulation and execution of sound and effective credit and collection policies largely depends on the location of credit department in the organizational structure. As credit and collection policies directly influence the solvency of the firm, they are considered to be under the responsibility of the chief finance officer. The other approach, referring to the receivables as a representation of sales and the value is not created until the collection is realized, proposes placing the authority of allocation under the direct charge of the marketing executive or the sales department. The choice of allocation of authority to administer credit and collection policies depends on either to a financial executive or the marketing executive or both of them jointly depending upon the organizational structure and the objectives of the company.