debtors management @ tata steel

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A STUDY ON

DEBTORS MANAGEMENT

AT

TATA STEEL&

ITS COMPARISON

WITH OTHER KEY PLAYERS

A Project Report submitted in partial fulfillment of the requirement for

BACHELOR OF BUSINESS ADMINISTRTION(Affiliated To Ch.Charan Singh University, Meerut)

2007-2010UNDER THE GUIDANCE OF

Internal Supervisior Submitted by

Mr.TUSHAR JINDAL(faculty) Rahul

IMS Ghaziabad 9351722

External Supervisior

Mr. K S M MATHEW

INSTITUTE OF MANAGEMENT STUDIES

GHAZIABAD

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DECLARATION CERTIFICATE

This is to certify that the work presented in the project entitled

DEBTORS MANAGEMENT in partial fulfilment of the requirement

for the award of degree of BBA, INSTITUTE OF MANAGEMENT

STUDIES,GHAZIABAD, is an authentic work carried out under my

supervision and guidance.

To the best of my knowledge, the content of this project does

not form a basis for the award of any previous degree to anyone

else.

Date: (Guides

name &signature)

Department

of Management

BBA IMS,

GHAZIABAD

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CERTIFICATE OF APPROVAL

The foregoing thesis entitled DEBTORS MANAGEMENT at TATA

STEEL AND ITS COMPARISON WITH OTHER KEY PLAYERS, is hereby

approved as a creditable study and has been presented in

satisfactory manner to warrant its acceptance as prerequisite

to the degree for which it has been submitted.

It is understood that by its approval, the undersigned do not

necessarily endorse any conclusion drawn or opinion

expressed therein, but approve the project for the purpose for

which it is submitted.

Co-ordinator- BBA Academic Co-ordinator

DirectorIMS-GZB.

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Acknowledgement

It is my privilege to work on the project Debtors managementat Tata Steel Ltd and its comparison with other keyplayers. At the very outset, I am obliged to TATA STEEL forthe permission to undertake training program and provide mewith the basic infrastructure and facilities.

I express my sincere sentiments of gratitude to Mr. K S MMATHEW (Head Sales & EPA A/c) who guided me throughoutthis project. I would also like to thankMr. PRANAV JHA (Sr.Manager Sales & EPA A/c) for his continuous assistance withoutwhich this project would not have been a success.

It is the spirit of being associated with the Finance andAccounts department particular and Tata Steel in general whoinspired me to complete this project successfully.

I am indebted to my mentorMr. K B SINGH for extending hisuntiring guidance to me, by constantly discussing the projectmatter and helping me in clarifying my thinking in several

pertinent issues and providing a meaning full insight into thesubject.

Last but not the least; I also thank Ms.VANDANA KHEMKA(Manager Sales & EPA A/c) & Ms. PADMA MOHANTY(Accountant) who has been a source of inspiration through their

constant guidance, personal interest, encouragement and help

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& has made my stay in the company such a pleasant memory.In spite of their busy schedule they have always found time toguide me through the project. I am also grateful to them forreposing confidence in my abilities and giving me the freedom

to work on my project.

I owe my deep sense of gratitude and sincere thanks to all ofthem

Thank you.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

1

CHAPTER 1

INTRODUCTION

1.1.1 Account receivable-definition.........

5

1.1.2 Debtors management.....

6

1.1.4 Need for trade credit...

8

1.1.5 Determinants of size of receivables.9

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1.1.6 Cost & benefits associated with receivable

management.... 11

1.1.7 Expert view ....

13

Company Profile

1.2.1 History of steel.....

14

1.2.2 Indian Steel Industries ....

16

1.2.3 Company Overview .....

19

1.2.4 Tata steel stand alone .....

45

1.2.5 Overview of the finance division of Tata steel.

. 57

1.2.6 Sundry debtors section......

58

CHAPTER 2

RESEARCH METHODOLOGY

2.1 Type of Research..

60

2.2 Objective of the study..

60

2.3 Scope of Study .

60

2.4 Sources of data collection.

60

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2.5 Sampling..

60

CHAPTER 3

CREDIT DECISION

3.1 Tata steels credit monitoring and control

65

3.2 Operational working at Tata steel for managing

debtors.. 68

3.3 Channel financing...

70

3.4 Credit assessment modules..

72

3.5 Understanding the debtors process system.....

84

CHAPTER 4

COMPARATIVE ANALYSIS OF TATA STEEL WITH OTHER STEEL COMPANY

4.1 Tata steel vs. Steel authority of India limited (sail).....

89

4.2 Tata steel vs. Arcelor Mittal (Mittal steel)

95

4.3 . Tata steel vs. Jindal steel & power ltd ..

99

CHAPTER 5

TATA STEEL & RECESSION

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5.1 Tata steels game plan to beat recession...

. 108

5.2 After

recession........................ 109

5.3 Articles from the

newspapers...... 111

CHAPTER 6

CONCLUSION AND SUGESSTIONS

6.1 Suggestion..

113

6.2 Limitation of the Study..

114

6.3 SWOT analysis of debtors management process at Tata

steel 115

6.5 Views of debtor management expertise... 117

6.4Conclusion.... 118

REFERENCE

ANNEXURE - Bibliography

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Executive Summary

The project deals in DEBTORS MANAGEMENT AT TATA STEEL & ITS

COMPARISON WITH OTHER KEY PLAYERS. Receivable management is one of the

most important aspects of the organization, as it deals with the management of the

outstanding. The profit of the company mainly depends on the accounts receivables.

Therefore it needs a careful analysis and proper management.

Debtors occupy an important position in the structure of current assets of a firm. They are

the outcome of rapid growth of trade credit granted by the firms to their customers. Trade

credit is the most prominent force of modern business. It is considered as a marketing tool

acting as a bridge for the movement of goods through production and distribution stages to

customers.

Till few years back, Tata Steel had a very strict policy of selling against advance payments.

That was an era of controlled economy. However, with an increasing domestic and

international competition, Tata Steel could no longer afford this policy, in order to maintain

its premium position. Further in order to capture a greater amount of market share, it was

compelled to go by the industry norms and thus it ushered into the new era of credit sales.

This resulted in credit sales going up significantly. A credit limit was sanctioned to everycustomer. The customers were required to pay the outstanding amount on the due date.

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INTRODUCTION

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1.1What is an account receivable?

Accounts receivable is an accounting transaction which deals with the billing of customer

who owes money to a person, company or organization for goods and services that has been

provided to the customers. In most business entities this is typically done by generating an

invoice and mailing or electronically delivering it to the customer, who in turn must pay it

within an established timeframe called credit or payment terms.

An example of a common payment term is Net 30, meaning payment is due in the amount of

the invoice 30 days from the date of invoice. Other common payment terms include Net 45

and Net 60 but could in reality be for any time period agreed upon by the vendor and the

customer.

On a company's balance sheet, accounts receivable is the amount that customers owe to that

company. Sometimes called trade receivables, they are classified as current assets assuming

that they are due within one year. To record a journal entry for a sale on account, one must

debit a receivable and credit a revenue account. When the customer pays off their accounts,

one debits cash and credits the receivable in the journal entry. The ending balance on the trial

balance sheet for accounts receivable is always debit.

Accounts receivable departments use the sales ledger. Other types of accounting transactions

include accounts payable, payroll, and trial balance.

BOOK KEEPING FOR ACCOUNTS RECEIVABLE

Companies have two methods available to them for measuring the net value of accountreceivables, which is computed by subtracting the balance of an allowance account from the

accounts receivable account.

The first method is the allowance method, which establishes a liability account, allowance

for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for

accounts receivable. The amount of the bad debt provision can be computed in two ways -

either by reviewing each individual debt and deciding whether it is doubtful (a specific

provision) or by providing for a fixed percentage, say 2%, of total debtors (a general

provision). The change in the bad debt provision from year to year is posted to the bad debt

expense account in the income statement.

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The second method, known as the direct write-off method, is simpler than the allowance

method in that it allows for one simple entry to reduce accounts receivable to its net

realizable value. The entry would consist of debiting a bad debt expense account and

crediting the respective account receivable in the sales ledger.

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1.2 Receivable management CONCEPT

The term receivable management is defined as debt owed to the firm by customer arising

from the sale of goods/ services in the ordinary course of business. The receivable

represents an important component of the current assets of the firm. Receivables may be

known as accounts receivables, trade creditors or customer receivable. When a firm its

products / services and does not receive cash for it immediately, the firm has said to be

granted trade credit to the customers. Trade credit thus creates receivable / book debts, which

the firm is expected to collect in near future. Accounts receivable are thus amounts due from

customers, which bear no interest in essence, a company is providing no cost financing to the

customer to encourage the purchase of the companys product/services.

The extension of credit can be justified only if the increase in the sales and related cash

collections (discounted for the time until collection) exceeds the amount otherwise cash

generated under a cash only policy.

These customer from whom receivable or book debt are to be collected in the future are called

as trade debtors or simply as debtor and represents the firms claim on assets. Trade

debtors are expected to be converted into cash within a short period and are included in the

current assets. Since receivables often accounts for the significance portion of total assets, it

requires careful attention and adequate management. It is skill demanding field because thecustomer has to be bestowed with trust along with a continuous vigilance.

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OBJECTIVE OF DEBTORS MANAGEMENT

It is not always possible to sell goods on cash basis only, sometimes other firms in that line

might have establish a practice of selling goods on credit under these circumstances, it is not

possible to avoid credit sales without adversely affecting the sales. Hence the firm is required

to allow the credit sale in order to expand its sales volume. The increase in sales is also

essential to increase profitability. The sales of goods have become an essential part of the

modern competitive economic system. In fact credit sales and receivables are treated as a

marketing tool to aid the sale of goods. Credit sale is generally made in an open account in the

sense that there is no formal acknowledgement of debt obligation through a financial

instrument. As a marketing tool they are indene to promote sales and thereby profits. However

extension of credit involves risk and cost. Management should weigh the benefits as well as

the costs to determine the goals of receivable management.

Thus the objective of receivable management is:

To promote sales and profit until that point is reached where the return on investment

in further funding of receivable is less than the cost of funds raised to finance that

additional credit(i.e. cost of capital)

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1.4 NEED FOR GRANTING TRADE CREDIT:

Trade credit is an important marketing tool. A policy of trade credit is followednearly in all capital intensive industries either for sales expansion and /or salesretention. Under any circumstances investment in receivable is growth oriented.

Various factors that favours credit

15

Market factors

CompetitionCustomersrequirement

Recessionary

economic

conditions

Marketing

Tool


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MARKET FACTOR:Market factors like price, forces accompany to grant credit.For example, TATA STEEL whose price is comparatively higher is forced to grant credit inorder to maintain sale.

COMPETITION: In view of stiff competition from both domestic andinternational players, the company is left with no option then to grant credit.

Competition is another vital factor, which affects the credit policy of a firm, and

TATA STEEL is not an exception.

CUSTOMERS REQUIREMENT: As the market has changed to the

buyers market, the customers have become kings. If the customer expects credit and

is worthy of it, he gets it.

MARKETING TOOL: T o push up sales of slow moving products and

encourage bulk purchase of fast moving products, credit plays an effective role in this

context.

RESESSIONARY ECONOMIC CONDITIONS: Liquidity crunch forcesthe company to grant credit.

1.5 DETERMINANT OF SIZE OF RECIEVABLES

Beside sales, a number of factors also influence the size of receivables. The following factorsdirectly or indirectly determine the size accounts receivables.

Level of sales: The most important factor in determining the volume of

receivable is the level of firms credit sales. With an increase in the size of the sales,

it may bring about a proportional increase in the magnitude of receivable.

Credit policies: The firm with the liberal credit policy will have a higher

level of receivable than with a conservative or rigid credit policy.

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Terms of trade: The size of receivables also depends upon the term of trade.

The period of credit allowed and rates of discounts given are linked with receivables.

If the credit period allowed is more, the receivable will also be more similarly if the

rate of discount are reasonable, then also the size of the receivable will increase.

Profit: The level of receivables increases as a result of increase in sales.

When sales increase beyond a certain level, the additional cost incurred are less than

the increase in revenue. It will be beneficial to increase sales beyond a point because

it will bring more profit. The increase in profit will be followed by an increase in the

size of the receivable.

Market: It may be necessary for the firm to explore a new market for itsproducts/services. One of the attractive way in which a firm enters a new market is by

giving incentives to the customers in the form of credit facilities. In doing so, the size

of receivable will increase.

Grant of credit: Size of the receivable depends upon the policies and

practices of the firm in determining which customer are to be granted credit.

Paying habit of the customer: The paying habits of the customers also have

a bearing on the size of receivables. The customers may be in habit of delaying

payments even though they are financially sound. In such case, the firm should

remain in constant touch with its customers.

Collection policies:The vigour with which affirm collects its dues from thecustomers also affects its receivables, for if the amounts due are not collected timely;

a firm suffers some financial difficulties, if not losses.

Operating efficiency: The degree of operating efficiency in billing, record

keeping and other function also exercise some influence on a firms credit policy

which in turn influences its receivables.

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Credit collection: The collection of credit should be streamlined. Efficient

credit collection machinery will reduce the size of receivable. Individual firm of tern

set up their own well organised credit collection department.

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1.6 COSTS AND BENEFITS ASSOCIATED WITH

receivable MANAGEMENT

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COSTS

COLLECTIONCOST

CAPITAL COST

DELIQUENCY

COST

DEFAULT COST

COSTS

COLLECTIONCOST

CAPITAL COSTDELIQUENCY

COST

DEFAULT COST


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COSTS:

The major categories of cost associated with extension of credit and receivable are:

Collection cost

Capital cost

Delinquency cost

Default cost

COLLECTION COST:

These costs are administrative cost incurred in collecting the receivable from the customers.

This category includes:

1. Additional expenses on the creation and maintenance of a credit department

with staff, accounting, records, stationary, postage and other related items.

2. Expenses involved in acquiring credit information either through outside

specialist agencies or by the staff of the firm itself.

CAPITAL COST:

Accounts receivables, being an investment in current assets, have to be financed involving a

cost. There is a time lag between the sale of goods to, and the payment by, the customers.

Meanwhile the firm has to pay employees and suppliers of raw material i.e. the firm should

arrange for additional funds to meet its own obligations. Thus, the cost on the use of additional

capital to support credit sales is therefore apart of the cost of extending credit.

DELINQUENCY COST:

This cost arises out of the failure of the customer to meet their obligations when payment on

credit sales becomes due after the expiry of the period of credit. Such cost includes:

Blocking up of funds for an extended period.

Cost associated with steps that have to be initiated to collect the overdue, such

as reminders and other collection efforts, legal charges, where necessary , and so on.

DEFAULT COST

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In addition of the above cost the firm may not be able to recover the overdue because of

inability of the customers. Such debts are treated as bad debts and have to be written off, as

they cannot be realized. Though a concern may be able to reduce bad debts through efficient

collection mechanism, one cannot altogether rule out the possibility of this cost.

BENEFITS:

Apart from the cost, another factor that has a bearing on accounts receivable is the benefit

emanating from credit sales. The benefits are:

The increased sale and thereby profits

However, the benefits would depend upon the credit policy adopted by the firm, i.e., a

conservative or liberal credit policy. The impact of liberal credit policy is likely to have two

forms:-

i. Sales expansion

ii. Sales retention

In sales expansion a firm may grant credit either to increase sales or to attract new customer.

This motive is growth oriented; on the other hand the sales retention the firm may grant credit

to protect its current sales against emerging competition. No matter whatever is the motive, the

result the result of increased sales is the increase the profit of the firm.

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SOME BASIC DEFINITION

When the buying and selling process steps forward and the customer is not able to pay the total

amount, the amount which they are not able to pay at the same time of buying the amount is

known as DEBT.

In the balance sheet of companies those customers are DEBTORS. In their balance sheet

company is a CREDITOR.

On the basis of market performance and credit rating company decides the time period of

payback of the amount. This time period is known as CREDIT PERIOD.

The total amount called as debt is called as OUTSATNDING. When this total outstanding is

not paid within the credit period the amount remained to be collected is called as OVERDUE.

The total overdue is divided in different parts such as overdue within 3months, from 3-6

months, 6-12 months, 1 to 2 yrs, 2-3 yrs, above 3yrs, and above 5 yrs.

When the customer is not able to pay back the due after five years then this amount is known

as BAD DEBTS.

Tata Steel has kept some amount for this type of time of contingencies. This amount use for

decreasing the effect of bad debts is called as PROVISION.

CURRENT ASSETS are those assets which can be converted into cash within the period of12 months starting from the companys financial year.

CURRENT LIABILITIES are those liabilities which are repaid within 12 months starting

from companys financial year.

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EXPERT VIEW

It is generally believed that credit policy stimulates sales as it helps in

retaining existing customers and winning clients from rivals. Trade debtors

represent amounts owed to the firm as a result of credit sale of goods or

services in the ordinary course of business.

The key function of credit management is to optimize the sales at the minimum

possible cost of credit.

According to Joseph, "The purpose of any commercial enterprise is the

earning of profit. Credit in itself is utilized to increase sales, but sales must

return a profit".

The offer of trade credit should not only optimize sales but also lead to

maximization of overall return on investment. Management of receivables,

therefore, should be based on sound credit policies and practices.

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COMPAN

YPROFILE

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3.1 HISTORY OF STEEL

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD.

Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time

period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly

used in that period in each and every part of life. But, with the change in time and technology,

people were able to find an even stronger and harder material than iron that was steel. Using

iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldnt

do. The Chinese people invented steel as it was harder than iron and it could serve better if it

is used in making weapons. One legend says that the sword of the first Han emperor was

made of steel only. From China, the process of making steel from iron spread to its south and

reached India. High quality steel was being produced in southern India in as early as 300 BC.

Most of the steel then was exported from Asia only. Around 9th century AD, the smiths in the

Middle East developed techniques to produce sharp and flexible steel blades. In the 17th

century, smiths in Europe came to know about a new process of cementation to produce steel.

Also, other new and improved technologies were gradually developed and steel soon became

the key factor on which most of the economies of the world started depending.

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FIG:Stages in Global Production of Steel

India is one of the worlds top ten steelmakers its domestic output is insufficient to

meet the demand in all segments.

Consumption of steel is very fast and as a consequence of the prospective dynamic

economic growth.

Secondly, there is demand for high-quality products which India will not be able to

supply in sufficient quantities for the foreseeable future.

3.2 THE GLOBAL STEEL INDUSTRY

The current global steel industry is in its best position in comparing to last decades. The price

has been rising continuously. The demand expectations for steel products are rapidly growing

for coming years. The shares of steel industries are also in a high pace. The steel industry is

enjoying its 6th consecutive years of growth in supply and demand. And there is many more

merger and acquisitions which overall buoyed the industry and showed some good results.

The subprime crisis has lead to the recession in economy of different countries, which may

lead to have a negative effect on whole steel industry in coming years. However steel

production and consumption will be supported by continuous economic growth.

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CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

The countries like China, Japan, India and South Korea are in the top of the above in steel

production in Asian countries. China accounts for one third of total production i.e. 419m ton,Japan accounts for 9% i.e. 118 m ton, India accounts for 53m ton and South Korea is

accounted for 49m ton, which all totally becomes more than 50% of global production. Apart

from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.

3.3 INDIAN STEEL INDUSTRIES

The challenges that confront Indian steel industry in the age of globalization are complex in

nature. The secret of sustainable turnaround lies in how Indian steel industry faces the

challenges and develops combative and anticipatory prowess. Problems and solutions may

vary with organizations but there is more a commonality than initially meets the eye. A two-

step strategy is suggested for the sustainable turnaround in the industry. These stages, aimed

to ensure survival and growth have been termed survival strategy and growth strategy. The

survival strategy provides a foundation upon which a potent growth strategy could be

formulated. While the survival strategy would ensure the survival of the ailing steel industry,

the growth strategy would simultaneously take care of its total transformation towards a better

future. Both stages, to be implemented through an integrated plan, are essential to enable the

industry overcome the present imbroglio.

Indian steel industry is poised for rapid growth.

Indias share in world production of crude steel increased from 1.5% in 1981 to around

7.3% in 2008.

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The private sector is considered engine of growth in the steel industry and

technological changes and modernization are taking place in both the public and the private

sector integrated steel plants in India.

SOME OF THE LEADING COMPANIES IN INDIAN STEEL INDUSTRY

ARE AS FOLLOWS:

Tata Steel: Producer and supplier of wire rods, bars, and steel flats

Steel Authority of India: Manufacturer of steel and iron

Ambica Steel: Producer of carbon steel, alloy, and stainless steel

Bokaro Steel Plant: Steel manufacturer

Central Steel Corporation: Producer of alloy and tool steels

Allied Ferromelt: Producer of non alloy and alloy steel

Anchor Engineers' Files: Producer of steel files for engineers

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Essar Steel: Producer of sponge iron, steel and iron ore pellets

ColdFab: Producer of pre-fabricated buildings of steel

Hisar Metal: Producer of strips and stainless cold rolled steel coils

Buyao Info: Producer of steel products and re-rolled iron

Jindal Iron & Steel: Producer of galvanized steel products

Kanoi Group: Dealer of corrugated sheets and steel coils

Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron

Metalman Industries: Producer of tubular and flat steel items

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3.3 Company overview

Backed by 100 glorious years of experience in steel making, Tata Steel is the worlds 6th

largest steel company with an existing annual crude steel production capacity of 30 Million

Tons Per Annum (MTPA). Established in 1907, it is the first integrated steel plant in Asia

and is now the world`s second most geographically diversified steel producer and a Fortune

500 Company Tata Steel has a balanced global presence in over 50 developed European and

fast growing Asian markets, with manufacturing units in 26 countries.

Tata Steel`s Jamshedpur (India) Works has a crude steel production capacity of 6.8 MTPA

which is slated to increase to 10 MTPA by 2010. The Company also has proposed three

Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with

additional capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing

network in Europe, South East Asia and the pacific-rim countries. Corus, which

manufactured over 20 MTPA of steel in 2008, has operations in the UK, the Netherlands,

Germany, France, Norway and Belgium. Tata Steel Thailand is the largest producer of long

steel products in Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has

proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel Holdings produces

about 2 MTPA of steel products across its regional operations in seven countries.

Tata Steel, through its joint venture with Tata BlueScope Steel Limited, has also entered the

steel building and construction applications market.

The iron ore mines and collieries in India give the Company a distinct advantage in raw

material sourcing. Tata Steel is also striving towards raw materials security through joint

ventures in Thailand, Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata

Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 joint

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venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New

Millennium Capital Corporation, Canada for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil Nadu, Ferro-chrome plant

in South Africa and setting up of a deep-sea port in coastal Orissa are integral to the Growth

and Globalisation objective of Tata Steel.

Tata Steels vision is to be the global steel industry benchmark for Value Creation and

Corporate Citizenship.

Tata Steel India is the first integrated steel company in the world, outside Japan, to be

awarded the Deming Application Prize 2008 for excellence in Total Quality Management.

MILESTONes

Jamshedji Nauserwanji TATA

started a private trading firm,

laying the foundation of the

TATA Group.

The central INDIA spinning,

weaving and manufacturing

company is set up, marking

the group entry into textiles.

The Indians hotels

company is incorporated

to set up the Taj Mahal

Palace and Tower, India's

first luxury hotel, which

opened in 1903.

The TATA Iron and Steel

Company (now TATA Steel)is

established to set up India's

first iron and steel plant in

Jamshedpur.

The first of the three TATA

Electric Companies, The Tata

Hydro-Electric Power Supply

Company, (now TATA Power)

is set up.

The Indian Institute of

Science is established in

Bangalore to serve as a

centre for advanced

learning.

31

1868 1874 1902

1907 19111910


32/140

TATA Steel introduces eight-

hour working days, well

before such a system was

implemented by law in much

of the West.

The TATAs entered the

consumer goods industry, with

the TATA Oil Mills Company

being established to make

soaps, detergents $ cooking

oils.

TATA airlines, a division

of TATA sons, is

established to opening up

the aviation sector in

India.

TATA Chemicals, now the

largest producer of soda ash

in the country, is established.

TATA engeneering and

Locomotive (renamed as

TATA MOTORS) is

established to manufacture

locomotive and engeneering

products.

Jawahar lal Nehru Indias

first prime minster

requested the TATA

Group to manufacture

cosmetics in India,

leading to satting up the

LAKME.

TATA finlat (now

TATA tea), one of the

largest tea producers is

estblished.

TATA export is

established. Today the

company renamed as

TATA consultancy services

(TCS) Indias first software

services company is

established as a division of

TATA sons.

TATA McGraw-Hill

Publishing Company is

created to publish

educational and technical

books.

32

1912 1917 1932

1939 1945 1952

1962 1968 1970


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TATA International, is

one of the leading export

houses in india.

TITAN Industries- a joint

venture between TATA Group

and Tamil Nado IndustrialDevelopment corporation is

set up to manufacture watches.

TATA Teleservices (TTSL) is

established to spearhead the

Group's foray into the telecomsector.

TATA Indica India's

first indigenously

designed andmanufactured car is

launched by TATA

MOTORS, spearheading

the Group's entry into the

passenger car segment.

The TATA Group

acquires a controlling stake in

VSNL, India's leading

international

telecommunications service

provider.

TATA Consultancy

Services (TCS) becomes the

first Indian software

company to cross one billion

dollars in revenues.

TATA MOTORS acquires

the heavy vehicles unit of

Daewoo Motors, South

Korea.

TCS goes public in July

2004 in the largest private

sector initial public offering

(IPO) in the Indian market,

raising nearly $1.2 billlion.

TATA Steel acquires

Singapore-based steel

company NatSteel by

subscribing to 100

per cent equity of its

subsidiary, NatSteel

Asia.

VSNL acquired

33

20042002 2005

1984 1996 1998


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Titan launches Edge, the

slimmest watch in the world.

Idea Cellular, the cellular

service born of a tie-up

involving the TATA Group,

the Birla Group and AT&T,

is launched.

TATA Indicom, the

umbrella brand for telecom

services from the TATA

Teleservices stable, starts

operations.

TATA steel acquires CORUS

thus becoming the sixth

largest steel maker of the

world.

TATA Group acquires

JAGUAR & LAND ROVER

from FORD MOTERS.

34

2007 2008


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We aspire to be the global steel industry benchmarkfor

Value Creation and Corporate Citizenship.

We make the difference through:

Ourpeople, by fostering team work, nurturing talent, enhancing leadership capability and

acting with pace, pride and passion.

Ouroffer, by becoming the supplier of choice, delivering premium products and services,

and creating value with our customers.

Ourinnovative approach, by developing leading edge solutions in technology, processes

and products.

Our conduct, by providing a safe working place, respecting the environment, caring for

our communities and demonstrating high ethical standards

.

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GROUP VISION

We aspire to be the global steel industry benchmark for

Value Creation and

Corporate Citizenship.

We make the difference through:

OurPEOPLE, by fostering team work, nurturing talent, enhancing leadership capability and

acting with pace, pride and passion.

OurOFFER, by becoming the supplier of choice, delivering premium products and services

and creating value with our customers.

OurINNOVATIVE APPROACH, by developing leading edge solution in technology,

process and products.

OurCONDUCT, by providing a safe working place respecting the environment, caring for

our communities and demonstrating high ethical standards.

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Products

Tata Steel`s Jamshedpur Works produces hot and cold rolled coils and sheets, galvanized

sheets, tubes, wire rods, construction rebars and bearings. In an attempt to 'decommoditise'

steel, Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold

Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata

Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized wire products),

Tata Pipes (pipes for construction) and Tata Structura (contemporary construction

material).Apart from these product brands, the company also has in its folds a service brand

called steel junction.

Corus main operating divisions comprise Strip Products, Long Products and Distribution &

Building Systems Division.

The NatSteel group produces construction grade steel such as rebars, cut-and-bend cages for

construction, mesh, precage bore pile, PC wires and PC strand.

Tata Steel Thailand produces round bars and deformed bars for the construction industry.

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MOZAMBIQUE

IVORY COST

OMAN

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AWARDS AND RECOGNITIONS

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Awards and Recognitions

Tata Steel India awarded the Deming Application Prize 2008 for excellence in Total

Quality Management. It is the first integrated steel company in the world, outside Japan to

get this award.

World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two

consecutive years) in its annual listing in February 2006.

Tata Steel has been conferred the Prime Minister of India's Trophy for the Best

Integrated Steel Plant five times.

It has been awarded Asia's Most Admired Knowledge Enterprise award five times in

2003, 2004, 2006, 2007 and 2008. Conferred the prestigious Global Business Coalition Award for Business Excellence

in the Community in recognition of its pioneering work in the field of HIV/ AIDS awareness.

Tata Steel works has been conferred the prestigious social accountability (SA) 8000

certification by social. Accountability international (SAI), USA. It is the first steel company

in the world to receive this certificate.

Corporate Sustainability Report of Tata Steel hailed by United Nations Environment

Programme (UNEP) and Standard and poor as strongest, submitted by any corporate housefrom emerging economies.

Best governed company Award 2006 for setting high standards in governance

practices.

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(As on 7th May, 2009)

Mr. B Muthuraman Managing Director

Mr. H M Nerurkar Executive Director,India and South EastAsia Operations

Mr. A D Baijal Vice President &

Tata Steel GroupDirector, GlobalMineral Resources

Mr. R P Singh Vice President,Engineering Services& Projects

Mr. Koushik Chatterjee Group CFO, TataSteel

Mr. Anand Sen Vice President, FlatProducts & TQM

Mr. Abanindra M. Misra Vice President, RawMaterials & CSI

Mr. Varun K Jha Vice President,Chhattisgarh Project

Mr. Om Narayan Vice President,Shared Services

Mr. Radhakrishnan Nair Chief HumanResource Officer

Mr. Partha Sengupta Vice President,Corporate Services

Mr. H Jha Vice President,Safety & LongProducts

Mr. N K Misra Vice President &Tata Steel GroupHead, M&A

Mr. B K Singh Vice President,Orissa Project

Mr. J C Bham Company Secretary

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Strategic Business Units OF TATA STEEL

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Corus: Europes second largest steelmaker with operations in the UK and

mainland Europe and over 40,000employees worldwide. Its long and strip

products cater to the construction,automotive, packaging, engineering andother markets worldwide. Corus isimplementing major investments at its

plants at IJmuiden, in the Netherlands andat Scunthorpe in the UK as part of its driveto strengthen product differentiation,improve operational efficiency andreinforce existing competitive position,

particularly in the construction andautomotive sectors, including thedevelopment of new advanced high strengthsteels.

(www.corusgroup.com)

Tinplate Company of India

Limited (TCIL): With a market share ofover 35%, it is the industry leader in India.It has the capability to supply all tinningline products including electrolytictinplate / tin-free steel and cold-rolled

products.

(www.tatatinplate.com)

Tayo Rolls Limited: India's leading rollmanufacturer and supplier, the company

produces rolls which find application inintegrated steel plants, power plants, the

paper, textile and food processing sectors,and the government mint.

(www.tayo.co.in)

Tata Ryerson Limited (TRYL):TRYL Is in the business of steel processingand distribution. It offers hot and coldrolled flat steel products in customised sizesand quantities through processing servicesand materials management services.

(www.tataryerson.com)

49
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Tata Refractories Limited (TRL): It produces High Alumina, Basic, Dolomite,Silica and Monolithic Refractories andoffers design, procurement and re-lining

applications services. It is one of the fewcompanies worldwide to produce silicarefractories for coke ovens and the glassindustry. The Company has a basic bricksmanufacturing unit in China.

(www.tataref.com)

Tata Sponge Iron Limited (TSIL):TSIL is the first Indian sponge iron plant

based on Tata Steel's Direct Reduction

Technology. Its major product lines aresponge iron lumps and fines.

(www.tatasponge.com)

Tata Metaliks: Amongst the top wealthcreating companies (EVA+) in the country,Tata Metaliks is engaged in the business ofmanufacturing and selling foundry grade

pig iron.

(www.tatametaliks.com)

Tata Pigments Limited: TPL's rangeof products includes oxides of iron, drycement paint, exterior emulsion paint anddistemper. Its products are used in paints,emulsion, cement floors, plastic etc.

(www.tatapigments.com)

Jamshedpur Injection Powder

Limited (Jamipol): JAMIPOLmanufactures carbide de-sulphurisingcompounds which are used for de-sulphurising hot metal for the production oflow-sulphur, high-quality steel.

(www.jamipol.com)

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TM International Logistics Limited

(TMILL):TMILL provides materialhandling and port operation services atHaldia and Paradip Ports in addition to

providing freight forwarding and charteringservices.

(www.tmilltd.com)

mjunction services limited :mjunction, operating at the cutting edge ofInformation Technology, is a 50:50 ventureof SAIL and Tata Steel. It is India's largesteCommerce company and the world'slargest eMarketplace for steel. Mjunction

offers a wide range of selling, sourcing andknowledge services that empowerbusinesses with greater process efficiencies.

(www.mjunction.in)

TRF Limited : TRF, one of India'sleading companies in the business ofdesign, manufacture, supply, installationand commissioning of engineered-to-orderequipment and systems in the areas of bulk

material handling, processing, reclaimingand blending. TRF has also made its markin the fields of coke oven equipment, coaldust injection systems for blast furnaces andcoal beneficiation systems.

(www.trfltd.com)

Jamshedpur Utility andService Company Limited(JUSCO) : Re-engineered out of TataSteel's town services, JUSCO is a whollyowned subsidiary of Tata Steel and is thecountry's first enterprise that providesmunicipal and civic services for townships.JUSCO is the only EMS 14001 civicservices provider in the country.

(www.juscoltd.com)

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The Indian Steel and Wire Products

Limited (ISWP) : Recently acquired byTata Steel, ISWP has two units - a wire unitcomprising wire drawing mills, wire rod

mills and a fastener division and a steel rollmanufacturing unit named JamshedpurEngineering and Machining Company -JEMCO.

Tata BlueScope Steel Limited:A jointventure with BlueScope Steel Limited,Australia, Tata BlueScope Steel Limitedoffers a comprehensive range of branded

steel products for building and constructionapplications. The Company is constructinga state-of-the-art metallic coating and

painting facility at Jamshedpur.

(www.tatabluescopesteel.com)

Dhamra Port Company, Orissa:A JV between Larsen & Toubro Ltd. and TataSteel Ltd., the company will build a deep-draft (18 metres) all weather port on the

east coast of India. The port will handle 80million tonnes per annum of cargo.

(www.dhamraport.com)

Hooghly Met Coke & Power

Company: A joint venture with WestBengal Industrial DevelopmentCorporation Ltd., HMC&PCenvisages an annual met coke

production capacity of 1.2 milliontonnes and 90 MW of electric power.

(www.hooghlymetcoke.com)

Lanka Special Steel Limited:The onlyunit in Sri Lanka manufacturing galvanisedwires.

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Sila Eastern Company Limited:Established to develop limestone mines inThailand, mainly for the captive use of TataSteel.

NatSteel Holdings (NSH) : A leadingsupplier of premium steel products for theconstruction industry. NatSteel Holdings

became a 100% subsidiary of Tata Steel inFebruary 2004. NSH produces about 2 MTof steel products annually across itsregional operations in seven countries.

(www.natsteel.com.sg)

Tata Steel Thailand: The company isthe dominant steel producer in Thailand.The company has the capacity to produce1.7 million tonnes of steel for theconstruction industry per year.

(www.tatasteelthailand.com)

Tata Steel KZN:Proposes to set up highcarbon ferrochrome plant in South Africa.The plant is slated to be commissioned byOctober 2007 with an annual productioncapacity of 135,000 tonnes during Phase 1.

Tata NYK: A joint venture with NipponYusen Kabushiki Kaisha (NYK Line) forsetting up a shipping company to cater todry bulk and break bulk cargo. Tata Steeland NYK will each hold 50% stake in the

joint venture company.

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The Company has set itself the objective of expanding its capacities and becoming globally

competitive in its business. as a part of its growth strategy, the Company believes in adoptingthe best practices that are followed in the area of Corporate Governance across various

54

National International

Jharkhand

Chhattisgarh

Orissa -Kalinganagar

- Dhamra

Port

Tamil Nadu

Vietnam

South Africa

Australia

Mozambique

Ivory Coast (West

Africa)

Oman
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geographies. The Company emphasises the need for full transparency and accountability in

all its transactions, in order to protect the interests of its stakeholders. The Board considers

itself as a Trustee of its Shareholders and acknowledges its responsibilities towards them for

creation and safeguarding their wealth.

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Tata groups Diversified area of business

Information systems and communications: The Tata group has well-established

enterprises in the fields of software and other information systems, telecommunications and

industrial automation.

Engineering: The Tata group has a robust presence in engineering, with operations in

automobiles and auto components and a variety of other engineering products and services.

Materials: The Tata group is among the global leaders in this business sector, with

operations in steel and composites.

Services: The Tata group has widespread interests in the hospitality business, as also ininsurance, realty and financial and other services.

Energy: The Tata group is a significant player in power generation and is also involved in

the oil and gas segment.

SOME OF WHICH ARE:

Tata Tele Services

Tata Power

Tata Consultancy Services

Tata Chemicals

Tata Assets Management

Tata Motors

Tata Capital

Titan Industries

Tanishq

Taj Group of Hotels

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Products of Tata group

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TATA

STEEL

STAND

ALONE 58


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TREND OF SALES

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

SALES 11920.96 15876.87 17144.22 19762.57 22191.8

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PRODUCT WISE NET SALES ARE ASFOLLOWS

Figures in Rs (crs)

FY 2006-07

FY 2007-08

STEEL 14858 16541

TUBES 1099 1217

FERRO ALLOYS AND MINERALS 1454 1808

BEARINGS 140 127

Analysis:

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The increase in the net sales of Tubes division was due to the increase in both the volume

as well as prices. The Ferro Alloys and Minerals division of the company registered a

growth of 24% in terms of value though there was a decline in terms of quantity due to the

companys decision during the year to stop the sale of ores. There was a decline in the net

sales of the Bearings division of the company mainly due to lower off -take by the

automotive sector, which is a major customer sector of the division.

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TREND OF DEBTORS

YEARS

FY 2003-

04

FY2004-

05

FY 2005-

06

FY 2006-

07

FY 2007-

08DEBTORS 756.06 581.82 539.4 631.63 543.48

Analysis:There has been decrease in the trend of debtors in last five years, from Rs.756.6crores to

Rs.543.48 crores. This decrease in debtors shows a more profit to the company. The increasein the debtors during 2006-07year might be due to the acquisition ofCORUS.

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DIVISION/PROFIT CENTRE WISE DEBTORS IN TATASTEEL FOR FY 07-08

PROFIT CENTERS For the FY 06-07 For the FY 07-08

STEEL 509.09 397.84WIRE DIVISION 43.82 33.30

TUBES 37.01 31.13

BEARINGS 7.01 7.29

F.A.M.D 70.44 107.59

TOTAL DEBTORS 667.37 577.15

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TRENDS OF DEBTORS IN TATA STEEL

Debtors Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

FY 06-07 614 688 756 663 658 753 680 670 731 709 774 667

FY 07-08 694 687 662 683 669 767 733 636 677 691 716 577

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TREND OF CURRENT RATIO


CURRENT RATIO 1.03 1.1 1.1 2.18 0.9

ANALYSIS:

The ratio is constant. An ideal current ratio is 1:1. In the year 2006-07 the ratio is very high

which is not desirable since it means there was less efficient use of funds which was lowering

down the profitability of the concern. In year 2007-08, the ratio has quite improved to 0.9

from 1.03 in the year 2003-04 and is coming closer to the ideal ratio.

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TREND OF DEBTORS TURNOVER RATIO


Debtors Turnover Ratio 13.38 23.81 28.73 31.9 35.66

ANALYSIS:

Debtors' turnover rate indicates how quickly receivables or debtors are converted into cash.

The liquidity of debtors, therefore, is measured through the debtors' turnover rate. A higher

debtors turnover coupled with quick average collection of debtors enables the firm to transact

a larger volume of business without corresponding rise in the investment in debtors . From the

above chart it is clear that the debtors turnover has been kept on increasing from 2003-04,

where it was 13.38times to 35.66 times in the year 2007-08.

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TREND OF AVERAGE COLLECTION PERIOD

YEARSFY2003-04

FY2004-05

FY2005-06

FY2006-07

FY2007-08

AVERAGE COLLECTIONPERIOD 27.27 15.33 12.7 11.44 10.23

ANALYSIS:

The turnover rate converted into average collection period is a significant measure of the

collection activity of debtors.An average collection period is a measure of how long it takes

from the time the sales is made to the time the cash is collected from the customers.Lesser the period better the situation for the company. In case of TATA STEEL there is a

continuous fall in average collection period from 27.7 days in 2003-04 to 10.23 days in 2007-

08, which is a good sign for the company.

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TREND OF AVERAGE DEBTORS TO TURNOVER RATIO

YEARS

FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08

Debtors Turnover Ratio 13.38 23.81 28.73 31.9 35.66

ANALYSIS:

The analysis of the trends in sales and trade debtors shows the effectiveness of the credit policyin activating sales. An uninterrupted upward trend in sales accompanied by downward trend indebtors indicates that the credit policy implemented by the company is very effective instimulating more sales. This can be easily seen in case of TATA STEEL where the averagedebtors to turnover has been decreased from 6.75% in 2003-04 to 2.65% in 2007-08.Further, ifthe pace of increase in sales is more than the pace of increase in debtors, it is also a symptom offairly favorable credit policy.

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PROVISION OF BAD DEBTS TO NET DEBTORS IN LASTFIVE YEARS

year 03-04 04-05 05-06 06-07 07-08

Debtors 651 582 539 632 543

Provision

for

doubtful

debt

61

39

32

36

34

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ASSET TURNOVER RATIO IN LAST FIVE YEARS

YEARS FY 2003-04 FY2004-05 FY 2005-06 FY 2006-07 FY 2007-08ASSET TURNOVER

RATIO (%) 100.78 110.41 108.76 77.02 106.25

ANALYSIS:

This ratio indicates the extent to which the investments in fixed assets contribute towardssales. When compared with a previous period, asset turnover ratio indicates whether theinvestment in fixed assets has been judicious or not. There has been an increase in the Fixed

Assets Turnover Ratio; this might be due to increase in net sales or due to the acquisition ofCORUS during the year2007.

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1.2.5 OVERVIEW OF THE FINANCE DIVISION OF TATA

STEEL

Thewhole finance and accounts department of Jamshedpur is divided in different groups and

sections. These were:

1. CASH OFFICE

2. FINANCE AND COSTS

3. PAYROLL ACCOUNTS

4. PURCHASE AND CAPITAL GROUP

5. SALES AND INDIRECT TAXATION

This project is related to DEBTORS MANAGEMNET, which is dealt by sales and indirect

taxation group. Everything related to debtors is termed as sundry debtors work.

Sales and indirect taxation group is responsible for accounting for activities such as:

FREIGHT- OUTWARD & INWARD (ROAD AND RAIL)

INVOICE

INDIRECT TAXATION MATTERS (EXCISE AND SALES)

It is also related to post sales activities like debtors and town accounting. It comprises of the

following sections:

EXCISE SECTION

FREIGHT SECTION

TOWN DEBTORS SECTION

OUTWARD INVOICE SECTION

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SUNDRY DEBTORS SECTION

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SUNDRY DEBTORS SECTION

As the name suggests, this section is responsible for the consolidated reporting of all the

debts due to the company and related information to the management. The section plays a

major role in monitoring the movements of debts & advising recoveries from the bills of

those vendors who are also the defaulting customer of the company. Notes are often put up

to the concerned profit centres to highlight probable cases of default.

ACTIVITIES OF SUNDRY DEBTORS SECTION:

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Inter office collection (on behalf of other divisions/ profit centres /sales offices).

Updating of debtors ledger and preparation of reviews for reconciliation of debtors

ledger balances with the corresponding balances as per financial accounts

Updating of advance ledger maintained for tender sales and for preparation of

reviews of advance ledger

Updating of auction ledger and preparation of monthly review foe auction ledger

Maintenance of security deposit ledger for the purpose of refund of security deposits

and for payments of interest on security deposits.

Preparation of reports:

Board note on debtors (Tata steel debtors)

Associated companys outstanding debtors report.

VP (F) Report (Gives the detailed outstanding of all major parties).

Preparation of the outstanding report for secondary products, Rings, Agrico & town.

Annual Business Plan Report

The Memorandum of understanding of sundry debtors section and continuous monitoring of

the performance against targets set.

OTHER ACTIVITIES:

Inputs for the credit control meeting

Preparation of the minutes of the CCCM.

Updating the status of the minutes of the CCCM

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RESEARCH METHODOLOGY

2.1 Type of Research

The study is descriptive in nature in the sense that it focuses basically on analyzing the

debtors management at TATA STEEL.

2.2 OBJECTIVE OF THE STUDY

The process of debtors management in TATA STEEL how the outstanding debtors are

accounted & what steps and actions are taken and should be taken to recover these

dues on time.

Comparison of Tata Steel with other key players with respect to the debtors.

Position of debtors in different industries.

2.3 SCOPE OF THE STUDYThe scope of this study is limited to the study of Debtors Management at TATA STEEL. The

scope encompassed with the debtors section of the company which is a part of finance and

accounting department.

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2.4 sources of data Collection

Primary data are collected by interviewing customers and employees of TATA

STEEL.

Secondary data are collected by using internet, magazines and text books.

2.5 Sampling

The study was done by using the age wise analysis of debtors.

CREDIT DECISION

PROCEDURE OF CREDIT DECISION

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WHAT IS CREDIT POLICY?

The credit policy provides the yardstick for measurement of credit level of receivables and is

the indentified and compared monthly, as per the requirements. The policy is influenced by the

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nature of market and strength of the competition. The policy clearly defines the standard for

target debtor level, which in turn is a significant influence both ion payment terms and on the

whole of the credit control operation, since it determines how much tolerance, if any, is to be

shown to slow paying customer.

CREDIT POLICY OF TATA STEEL

TATA STEEL has a body known as credit control committee, which formulates and gives the

final approval for many credit policy matters. The credit guidelines as they have emerged today

are combined efforts of finance and marketing department.

The credit control committee is headed by Sr.V.P & E.D (F&A) and consists of all product

and sales manager from various divisions along with G.M (F&A) and other concernedexecutives as its members. The committee meets at least in two months.

The annual limit of credit sale is provided by Sr.V.P (F&A) in consultation with other

management officials. The committee then discusses in detail about the breakup of the above

lump into the credit limits for different sales offices and also for various customers i.e. both

regional and party wise credit limit is set by the body.

Hence the basic purpose this committee is to set the standard and also have the overall control

of the credit situation, thereby keeping the financing of the working capital cost effective and

preventing any liquidity problems from arising.

As a general rule, credit is allowed to customer who takes large and repeated orders. One time

customers are not entertained for credit.

CREDIT TERMS

Credit terms refer to the terms and conditions on which the trade credit will be made available.

Thus the stipulations under which the goods are sold on credit are referred to as credit terms.

These relate to the repayment of the amount under the credit sale. These terms can befinalalized after the scrutiny of number of factors. The various factors which must be taken into

account are:

The seller companys place in the market and the credit terms on which it is buying from

its own suppliers.

The availability of the capital it needs to finance its own credit sales and whether this is

to be borrowed and if so at what cost; also the availability of capital to finance the

payment of other overheads.

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The existence of buyer and sellers market

The volume of sales planned and how these will be spread over the range of customers.

The profit margin to be obtained.

The competitive factors.

The character of the market

A. The period the buyer will have the goods i.e. the buying companys inventory turnover

and average collection period will ultimately decide the selling companys credit terms.

B. The condition of the customer finances and the degree of the credit risk, which the credit

sale will involve.

CREDIT TERMS HAS THREE COMPONENTS

i. Credit period

ii. Credit limit

iii. Cash discount

CREDIT PERIOD: is the duration of time for which trade credit is extended. During this

period the customers must pay the overdue amount.

CREDIT LIMIT: is decided by the top management and varies according to the market

condition. This total amount is broken up into regional limits, which is further segregated into

monthly limits within which the different parties have to accommodate. This function isperformed by the credit control committee as discussed above.

CASH DISCOUNT: is offered to induce the customers to make prompt payments. The

customers can take advantage of discount if they pay the amount within the stipulated time.

These credit terms usually written in abbreviation for e.g. 2/10net 30 where:

2 signifies the rate of cash discounts (2%)

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10 represent the time duration (10days)within which a customer must pay to be

entitled to the discount

30 represent the credit period.

Credit terms of Tata steel

The credit terms, i.e. the credit period and cash discount, followed by TATA STEEL are as

follows:

CREDIT PERIOD: the credit period is decided on the basis of the type of the product

and is generally of fixed nature. However, special customer may be allowed a variance in the

set credit period depending upon the volume of sales and customer relationships.

INTEREST CHARGED: interest free credit is allowed for 30 days in most cases. A

every 30 days extension there is a 1% rise in interest rate for secured credits. The rate of

interest for unsecured credit is1% more than the corresponding rate under secured credit .

there is a penal interest of 3% over the applicable rate of interest.

Time period Secured credit Unsecured credit

After 30 days 18.5% 19.5%

After 60 days 19.5% 20.5%

After 90 days 20.5% 21.5%

CASH DISCOUNT:

Cash discount of 2% has also been allowed for certain products in different division. The

discounts had a positive response from certain customers who had working capital problems

i.e. whose inventory turnover have also ignored the discounts and debtors turnover is low or

whose operating cycle is long

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COLLECTION EFFORT:

A constant touch with the customers is the best way of reminding him about his payment

schedule in a polite but firm manner. A daily, weekly and monthly report regarding the total

sale is done to keep a track on debtors and cash position. Tata steel s collection efforts were

not up to the mark that is the reason why outstanding of greater than six months were

increasing continuously which has now improved to a great extent.

4.1TATA STEELS CREDIT MONITORING AND CONTROL

As the most of the credit is unsecured, keeping a timely vigilance on the debtors is important

from the safety and the liquidity position of the firm. This primarily requires an efficient

collection process because slackness in the collection efforts lengthens the average collection

period, and increase the % of bad debt, for monitoring the debtors TATA STEEL is using

some steps. These steps are:

Preparation of a ageing schedule

Calculation of days sales o/s

Calculation of ACP

With the help of these, monthly reports are generated and are sent for review to credit control

committee chaired by V.P (F&A).

In case of secured credit where Tata Steel is also a debtor of its customers, it uses its

accounts payable as tool to realize its accounts receivables. In cases, which have the

symptoms of becoming the bad, a reconciliation statement is prepared and the mutual

agreement arrived at. However in the worst case legal action is pursued and bad debts are not

written off before five year.

FOLLOW UP

Proper follow up is done for the timely collection of debts. A daily, weekly, monthly report

regarding the sales is done to keep track on debtors and the cash position. Efficient and

capable Customers Accounts Managers are appointed for this purpose. Customers Accounts

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Managers is responsible for the collection of debts and follow up of the customers. Now

TATA STEEL has adopted many ways to follow-ups:

Phone

Fax

E-mail

Letters

Personal visit

TATA STEEL PROVISION POLICY

DEBTORS STATUS AS ON SUMMARY AS ON

DEBTORS PROVISION

GUIDELINE %Age

Provisions

required

Amount of

outstanding

Provision

required

1) BIFR CASES

a) Above three years

I. Recoverable

II. Non Recoverable

Total

b) Below three years

I. Recoverable

II. Non Recoverable

Total

100%

100%

100%

100%

TOTAL

2) LEGAL CASE

c) Above three years

I. Recoverable

100%

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II. Non Recoverable

Totald) Below three years

I. Recoverable

II. Non Recoverable

Total

100%

100%

100%

TOTAL

3) GOVT./TOWN DUES

e) 6 month-1 year

I. RecoverableII. Non Recoverable

Totalf) 1-2 Years

I. Recoverable

II. Non Recoverable

Totalg) Above 2 years

I. Recoverable

II. Non Recoverable

Total

0%

100%

50%

100%

100%

100%

TOTAL

4)SUBSIDUARY COMPANIES

h) 6 months-2 years

I. Recoverable

II. Non Recoverable

Totali) Above 2 years

I. Recoverable

II. Non Recoverable

Total

0%

100%

100%

100%

TOTAL

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5)OTHERS

j) 6 months-three years

I. RecoverableII. Non Recoverable

Totalk) 3 years-5 years

I. Recoverable

II. Non Recoverable

Total

l) Above 5 years

I. Recoverable

II. Non RecoverableTotal

0%

100%

100%

100%

100%

100%

TOTAL

GRAND TOTAL

4.3 OPERATIONAL WORKING AT TATA STEEL FOR

MANAGING DEBTORS

OVERVIEW

Managing the debtors forTata steel is an important and chief function of the sales accounts

division of finance and accounts. All the transactions of commercial nature are dealt with by

this department in a detailed outline frame of working. The debtors arise each month out of

the sales made on credit and suitable feeding of the required figures has to be made once in a

month. This function is very much a difficult task owing to the various subsidiaries and

associate companies being controlled by TISCO itself.

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The activities of each of the companies are diverse in operations and require different policy

formulations and strategies for complying with the existing market requirements. But they

are controlled in a centralized manner so that they give an actual overview of the standing of

the company. The profitability of each of the above is equally important to arrive at a

consensus for finding out the actual earnings and future prospects. As such each of the

company under subsidiary and associate is incorporated under distinct centres as Profit

Centre.

To flatten the organizational structure and developed authority and responsibility for the

quicker responsiveness to changing market conditions and greater initiative in dealing with

different target markets, Tata steel has brought in the concept of profit centre. For all

practical purpose, each profit centre functions as a separate company within the hold of Tata

steel. From the debtors management point of view also each profit centre has the

responsibility of appraising and dealing with its customers. However the overall control is

centralized and is in the hands of the finance department. The main function which lies at the

hands of Tata steel, Jamshedpur is to report such standings of the actual debtors as on a

particular date to the MD in the form of a monthly report. The figures thus arrived at give an

overview of which profit centres contribute the most to the debtors standing and the specific

reasons for the same.

Being a steel manufacturing concern, Tata steel is mainly concerned with the actual debtors

arising for the following profit centres:

STEEL

WIRE DIVISIONS

FERRO ALLOYS AND MINERALS DIVISION

TUBES DIVISION

BEARINGS

Each of the above profit centers have debtors of their own which are handled and managed in

a centralized manner. For an example, tubes division is one of the most important divisionwhich has the maximum contribution to the total sales taking together all the profit centers at

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a point of time. It has various parties of its own as debtors such as ESSAR STEEL

LIMITED, BLUE STAR LIMITED, TATA CHEMICALS LIMITED,

MECHATRONICS and many debtors. A database relating to the different parties is

maintained in a pre specified format which helps in understanding the actual standing of the

debtor from the point of view of the actual sale being made to the party on credit till date.

This format helps in maintaining the records in a form which helps in judging the actual

ageing of the debtors and the amount being recovered from the total debt. By ageing we

mean to give an actual definition to the debtors in terms of how old has the debt been to him

and thereby categorizing him for the purpose. A same prescribed format is used by all the

profit centers for managing their respective debtors.

EXPLANATION

Through this preparation we get to know the actual total debtors figures and the major parties

that have contributed to the increase and decrease in the debtors as when compared with the

previous financial period. It mainly emphasizes upon the total debtors figures and the

overdue debtors and their major contributors in the form of party names and figures. It also

gives all list of indications for the debtors whose standing are for periods beyond six months.

This reporting is crucial for the reason that it gives the management the indicative areas for

focus, the reasons for a rise in debtors and suitable control for future standing which is

profitable to the company as a whole.

4.3 CHANNEL FINANCING

The core objective of channel financing is to provide integrated commercial and financial

solutions to the supply and distribution channels of a given industry. Channel finance gives

support to the commercial relationship between our clients and their suppliers and customers.

The commercial aim of the channel finance is to add value supply and distribution channels

by providing unique solutions that meet our customers demand.

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By providing short term lending to clients utilizing qualified receivables as collateral, value

is added to the client by way of working capital support, reduced account receivables and

improved control of the sales/ distribution channels. In addition, payables discounting serves

to add value by improving supplier relationships and enhancing cash flow management.

Forward and backward linkages in a business organisation play a significant role in the

success or failure of the business entity. For,(say) a manufacturing or trading firm, while the

suppliers of the raw material are important as they provide input for production, equally

important is the role of its distributors which sell products manufactured by the firm through

retailers to the ultimate consumers. Channel financing relates to ensuring that integrated

financial and commercial solutions are available to the entire chain of supply and distribution

that could ensure health of the firm, financed by the bank.

How channel financing is different from conventional lending?

Channel financing is different from the conventional lending since in conventional lending

the financing banks are generally not concerned as how the suppliers of the firm and dealers

of teh product of the firm are financing their activity. The weak financials of the

supplier(leading to delay in supply and non availability of market credit)or the dealers of the

product (delay in receipt of payments leading to higher book debts) could adversely impact

the top line sales and bottom line profits of the financed firms. In the channel financing, the

financing bank may have to find the ways and means as to how the suppliers and the

buyers(dealers of the product) can be financed through various instruments/facilities. Hence,

the channel financing adds value to the transaction for all the parties concerned, be it the

manufacturer/trader , the supplier of the inputs or the dealer/ buyer or the financing bank.

METHODOLOGY

Through channel financing the business firms can outsource a major part of their working

capital needs thereby reducing their dependence on bank finance. For instance, it need not

avail of credit from the bank to pay off the supplier, if the supplier gets the finance in his own

name from the bank for raw materials supplied on credit in the form of say, drawee bills

financing. The bank can also allow loan to the dealer for credit term that has been fixed

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between the firm and the dealer in the form of receivable finance or finance against book

debts or factoring of receivables. This enables the manufacturing firm to get the cash

immediately for the finished goods supplied. This firm functions as the principal customer

which suggests the names of its suppliers and dealers to the bank. Thereafter the bank makes

the a due diligence assessment of the suppliers/dealers standing credit worthiness and decides

to provide finance on merit.

BENEFITS TO THE FINANCED CONCERN, THE SUPPLIER

AND THE DEALERS/BUYERS

The pre and post sale of working capital requirement of the manufacturing concern would be

scaled down. Such firms can concentrate more on their core competence area of production

and marketing their products besides saving time and costs involved in arranging creditors

and monitoring recovery. As regards the suppliers and the dealers, the major benefit is that

they get payments promptly, which improve their liquidity position and cost. This also helps

them as well as bank to cut level of counter party risks.

GAINS TO BANKS

The bank also gain substantially from the process of channel financing which include

increased customer base, effective due diligence and smoothness of lending activity and loan

origination process. Besides, the banks will be able to ensure better credit discipline. Since

the risk is diversified through finance to supplier, manufacturer and the dealers, the credit

exposure norms are better observed. Hence the channel financing is a very convenient tool in

managing their assets portfolio.

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Credit assessment

modules

Cam-1(solvency)

Cam-2(financials)Cam-3(technology

and commercial)

Cam-4(quality andcredibility)

4.4 Credit assessment policy

Credit management module (based on lotus notes)

Behind every credit decision there is an inherent potential for loss informed credit decision

will minimize the risk, enhance the profitability and lead to better structuring of credit. For

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credit appraisal and risk assessment customers are broadly classified into three groups

namely

ORGANISED SECTOR (public and private ltd, companies including govt.

undertakings)

UNORGANISED SECTOR (traders, partnership firms, SIS units etc)

GOVERNMENT DEPARTMENT (defence , irrigation, power , railways, PWD,

CPWD)

Credit risk assessment of the customer is assessed

based on the following parameters:

ABILITY TO PAY- It is easy to assess the ability of the customer to pay and is

applicable to the organized sector

Solvency

Financial viability

Technological soundness

Commercial feasibility

WILLINGNESS TO PAY- it is based on the judgement and is applicable to both

organised and unorganised sectors. This is the only criterion adopted for assessing the

customers in the unorganised sectors.

The assessment criteria are:

Quality of management

Credibility

Past performance

Health of group companies

CREDIT DECISION:

Risk classification of the entry i.e. low/medium/ high

Should

debtors management @ tata steel

Documents