Below is the required help I need. I have attached one source which should aid in meeting the scholarly review requirement.

Prompt: Managing accounts receivable (trade credit) is critical to the company's ability to manage its daily ongoing operations and the associated cash flow requirements. Describe why the practice of managing accounts receivable (A/R) is so significant. Consider in your paper the following questions:

Why is the practice of managing A/R significant?

What is the influence of the management of A/R on shareholder value, credit policy decisions, credit rating sources for potential clients, credit scoring models, and credit terms with analysis?

Requirements of submission: Short paper assignments must follow these formatting guidelines: double spacing, 12-point Times New Roman font, one-inch margins, and discipline-appropriate citations (APA format). Page length requirements: three to five pages. Incorporate at least two scholarly resources.

Journal of Management and Governance 3: 1-29, 1999. 1999 Kluwer Academic Publishers. Printed in the Netherlands. 1 A Strategic Approach on Organizing Accounts Receivable Management: Some Empirical Evidence GREET ASSELBERGH Faculty of Applied Economics, University of Antwerp (RUCA), Belgium Abstract. In this paper, the organizational behavior in managing accounts receivable is studied. It is based on the recent surge of interest in trade credit management from both academics and practitioners emphasizing 1) the rather permanent character of these short-term but continuously renewed investments and 2) their strategic potential due to the existence of financial, tax-based, operating, transaction and pricing motives. The paper focuses on a search for sources of such a strategic value and for the determinants of its risk. More specifically this potential strategic value is said to create a need for flexibility and control in managing accounts receivable. It will therefore induce a need for internalization of its management. The resulting risks, however, favor its externalization. This results in a revision of the existing decision-making processes since, the extension of trade credit becoming a strategic asset, investments in accounts receivable cannot be judged by the financial needs incurred as measured by the traditional DSO-rate anymore. More specifically, a transaction cost theoretic approach is used to explain the decision whether or not to internalize the firm's accounts receivable management and its risk, resulting in a set of hypotheses to be tested on a sample of both large and medium-sized Belgian companies. 1. Introduction Firms rarely require immediate payment for their merchandise. For example, in the UK corporate sector more than 80% of daily business transactions are on credit terms and accounts receivable constitute one of the main assets on corporate balance sheets (35% of total assets) (Summers and Wilson, 1997). As soon as trade debtors settle their accounts, cash flows into the company. At the same time, however, new sales generate new accounts receivable. The level of debtors thus remains constant when sales figures are stable, while it grows as sales figures increase (Grass, 1972). Although firms extending trade credit heavily invest in accounts receivable, the resulting financial need is not the only reason why trade credit decisions merit more careful attention. This paper develops and discusses two additional considerations. First, firms selling on credit open themselves to moral hazard. When exchange relations are subject to imperfect information, this uncertainty results in transaction costs. Sellers thus have incentives to develop organizational structures that reduce the transaction costs resulting from this asymmetric information problem. Both homemade planning and sales structuring as well as balanced product and 2 GREET ASSELBERGH market portfolios can reduce this uncertainty, while externalization of risk becomes attractive when these homemade institutions fail. Second, vendors offering trade credit have to adopt a variety of new responsibilities: the decision whether or not to grant credit to a (new) customer, the assumption of credit-, administration- and collection-policies and the bearing of the credit risk involved. From a managerial point of view this means that the seller 1) finances the buyer's inventory, 2) engages in additional accounting and collecting activities, 3) monitors the financial health of both existing and potential customers and 4) gets involved in assessing and bearing new risks. Not all credit management functions, however, have to be performed by the seller. Indeed, when extending trade credit is thought to add no real value to the firm, its management can be contracted to a third party. A selling firm's decision to extend trade credit thus also requires the seller to decide whether or not to integrate into managing accounts receivable. Moreover, when the seller decides to enter a market transaction, several organizational structures can be employed. In their paper, Mian and Smith (1992) examine the relationship between the functions to be performed in the credit-administration process and the decision whether or not to subcontract these functions to a third party specialist. In this paper, however, the extension of trade credit is looked upon from both a more strategic and a risk-oriented point of view. The strategic approach is based on the extensive financial management literature claiming that the extension of trade credit can become advantageous to the supplier, in which there will be a need for flexibility in managing accounts receivable. The riskoriented point of view, on the other hand, is based upon those principles that deal with the moral hazard problem. Finally, the implications of these motivational theories are linked to the industrial organization literature on vertical integration. Three types of outsourcing are considered. At first, the factoring contract has been chosen to operationalize the externalization of accounts receivable management, since factoring is the most comprehensive type of outsourcing a firm's accounts receivable management.1 Next, we clearly isolate the decision to subcontract the administration process from the decision to subcontract the risks incurred, assuming that they are based on different decision processes with different decision variables. Indeed, we assume that both cost advantages and a need for flexibility in managing accounts receivable will cause integration of the firm's credit administration. The assumption of credit risk, however, will not be delegated to a third party when the transaction can be performed in a stable and predictable environmental setting (inducing a low need for monitoring and control). In section 2 we describe the alternate accounts receivable management policies studied. Section 3 develops the hypotheses used to explain the decision to subcontract or not to subcontract the responsibilities involved. The discussion is based on the motives of sellers to offer trade credit and the moral hazard problem created by delaying payments under conditions of imperfect information. Sections 4 and 5 describe the sampling procedure and the way in which the variables are measured, ORGANIZING ACCOUNTS RECEIVABLE MANAGEMENT 3 while the analysis procedures and results are reported in section 6. At the end of the paper, we summarize our conclusions. 2. The Nature of Outsourcing Contracts Before analyzing policy choices and their respective determinants, we first give a description of the basic governance structures studied. 2.1. FACTORING AND ITS EQUIVALENT Factoring basically offers three types of services: 1) finance, 2) risk control and 3) sales ledger administration (Brandenberg, 1987). However, not all factoring contracts provide this full array of services. Based upon the scope of his managerial needs the seller can decide on the extensiveness of the contract. The most important distinction between factoring contracts is that between recourse and non-recourse agreements. A non-recourse agreement implies that the factor makes the creditextension decision, monitors and collects the accounts receivable and bears the credit risk. Under a recourse agreement the firm selling on credit retains the risk of non-recovery of the debt. Moreover, when the contract provides financing, the factoring contract is called an advance-factoring contract. A full-factoring agreement then is a non-recourse agreement, providing financing for all credit sales (both national sales and export). The equivalents internalizing their accounts receivable management finance their accounts receivable out of general corporate credit and manage internally the credit-risk assessment, credit-granting, credit-collection and credit-risk bearing functions. 2.2. T HE ADMINISTRATIVE MANAGEMENT CONTRACT The companies using an administrative management contract are defined as those companies that use credit information agencies to assess the trade credit risks, to collect accounts receivable when they are due or ARF (Accounts Receivable Financing)-contracts and service contracts offered by a factor. Thus, although the administration of accounts receivable has been outsourced, the firm still bears the trade credit risk. 2.3. T HE RISK MANAGEMENT CONTRACT The risk management contract is defined as a contract that indemnifies firms against losses on uncollected accounts receivable but does not take care of the firm's credit administration process. Examples of such third party specialists are e.g. credit insurance contracts and partial factoring agreements. 4 GREET ASSELBERGH 3. Determinants of Alternate Policies Following the transaction cost approach, as developed by Coase (e.g., 1991) and Williamson (e.g., 1975), the transaction (or the exchange of goods and services) is the basic unit of analysis. Each time a transaction is performed, transaction costs arise. These can be defined as the negotiating, monitoring and enforcement costs that have to be spent to allow an exchange between two parties to take place and result from frictions or difficulties entailed by a combination of both human characteristics (bounded rationality and opportunism) and environmental factors (uncertainty, \"small numbers\