Canon - Second Part

FORE School of Management 2013-15

CANON INDIA PRIVATE LIMITED

(COMPANY PROFILE)

Canon India Pvt. Ltd Page 0

By: Subhanshu Gupta073055IMG-7


CANON INC.

In 1933, a small laboratory dedicated to making high-quality cameras was set up

in a simple apartment room in the Roppongi area of Tokyo. At that time, all high-

quality cameras were European with the majority coming from Germany. It was in

this small room that young people with a big dream earnestly began their work on

producing a high-quality Japanese camera, marking the beginning of

Canon. Founded on 10th August 1937 is it one of the leading companies of the

photography world and is headquartered in Japan. The corporate philosophy of

Canon is ‘kyosei’. A concise definition of this word would be "Living and working

together for the common good," but our definition is broader: "All people,

regardless of race, religion or culture, harmoniously living and working together

into the future." Unfortunately, the presence of imbalances in our world in such

areas as trade, income levels and the environment hinders the achievement

of kyosei. Addressing these imbalances is an on-going mission, and Canon is

doing its part by actively pursuing kyosei. Truly global companies must foster

good relations, not only with their customers and the communities in which they

operate, but also with nations and the environment. Today, Canon has

subsidiaries based across continents like America, Oceania, Middle East,

Europe, Asia, Africa with each having its own roles like Research and

Development, Manufacturing facilities, Marketing and Sales, etc.

Canon Inc. employs 194,151 people and reported annual revenues of US$ 35.5

Billion for the year 2013.



The Canon corporate DNA can be pictorially depicted as:



VISION OF CANON

“We will be the leading company in digital imaging industry through innovative

technologies, revolutionary marketing activities and sustainable growth.

We will be the company that is respected by people. People who work for Canon

and those related with it will take pride in their association.”

MISSION OF CANON

“We bring Canon-brand and related products to the Indian market, to delight our

customers with innovative technologies and excellent service.

We endeavor to contribute to the Indian economy and enhance the quality of

people’s lives.”

CORE VALUES

We believe and practice honesty, integrity and fairness in all our dealings.

We respect all people regardless of race, religion and culture.

We protect and nurture the environment.



COMPANY PROFILE

Incorporated in 1997, Canon India Pvt. Ltd. is a 100% subsidiary of Canon

Singapore Pvt Ltd; a world leader in imaging technologies. Canon today has

offices spread across 10 cities in India with an employee strength of over 1050

people and markets 160 comprehensive range of sophisticated and

contemporary digital imaging products in the country. These include digital

copiers, multi-functional peripherals, fax-machines, inkjet and laser printers,

scanners, All-in-ones, digital cameras, digital camcorders , dye sub photo

printers and semiconductors, card printers & cable ID printers.

Canon has pioneered five technology 'imaging' engines viz: Optical Engine,

Electro photography, Bubble Jet, Semiconductors and Display which drives

Canon's cutting-edge technology products. With over 1100 registered patented

technologies in Digital Cameras, 2300 in inkjet printers, 5600 in multifunctional

printers and more than 200 in scanners, Canon has emerged as one of the

leading technology innovators in the digital for imaging space worldwide .Canon

India forayed into retail space with the launch of its exclusive brand retail store

called "Canon Image Square." Canon has inaugurated 50 stores in 2011, added

43 stores in 2012, and targets to take the count to 300 stores by end of 2014.

Canon's unique initiative to tap B, C and D-class cities of the country, Canon

Image Express, reached 38 cities in Tier II and Tier III towns. With the acquisition

of Océ Canon was positioned as the undisputed leader in professional and

display graphics printing domain in 2010.



At present Canon has 109 Canon Image Squares across 56 cities all over India.

Canon India closed the year 2013 with revenues of Rs. 1,910 crore, 3% growth

over 2012. In 2011, Canon India was ranked as one of the top 25 Best

Employers in India by Aon Hewitt. The extensive study was conducted across 6

months and 200 companies with a stringent methodology to arrive at the

rankings.

Metrics covering information on business performance, organization structure,

and HR strategy, policies and metrics, employee survey of random population,

CEO interviews and on site audit to validate accuracy of information provided

and included interaction with HR teams, group discussions with employees and

managers, discussion with the CEO, and facility tour of the organization. Canon

takes pride in not only bringing quality products to the market; but also

contributes to minimizing environmental burden through effective application of

environmental technologies. Canon focuses on the development of resource

conserving products that are smaller, lighter and easy to recycle. In India, Canon

takes responsibility to dispose off end of life Canon products and other e-waste

by sending such waste to government approved recycling agency.

Today, Canon India is certified for ISO 9001, ISO 14001 and OHSAS 18001. In

2006 and 2010, the company was certified for its "Strong commitment to excel"

at the CII-EXIM Business Excellence Award. Over the last 14 years of its India

growth story, Canon's comprehensive range of the latest digital imaging products

supported by a trained sales force across the country has emerged as its key



differentiator.

Canon has around 100 primary channel partners 14 National Retail Chain

partners. Canon's service reach extends to over 2700 towns with over 200

service Engineers, 7 Canon owned service centers and 37 Canon Care Centers.

Canon has over 6000 secondary retail points including 400 National Retail Chain

store partners. Canon products are available in over 400 towns in India.

As part of the company's promise to enhance digital experience for consumers,

Canon Image Lounge was launched in 2008 in Gurgaon, Mumbai and

Bangalore for customers to get a touch and feel of Canon products.

The lounges provided a comprehensive display of Canon's vast range of

offerings and display over 101 consumer imaging products for consumers to

simply look, feel and experience without the compulsion on buying. Special

photography workshops and other customer engagement programmes were

conducted in these lounges.

Key Highlights 2012-13

Launched new Wi-Fi enabled cameras in India

Celebrated the opening of the 100th Canon Image Square store

Launched EOS Academy to promote photography culture in India

Canon launched cloud enabled next gen inkjet printers for digitally

connected Indian homes

In 2013, Canon launched Ultra light Portable scanner P-215 and a mobile

app marking Canon's entry in the home segment



In the same year Canon announced its entry in commercial printing

domain by launching DreamLabo 5000 printer

Pioneer of 100% cash back offer on laser printers under CLAP, Canon

Loyalty Achievement Program

Canon India's presence in the retail space for its exclusive brand retail

store called "Canon Image Square" and has inaugurated total of 109

stores. Canon Image Square revenues in 2013 registered a growth of 25

% over 2012

Canon launched a variety of technologies for digital cameras, camcorders,

lenses, printers and MFDs in 2013

Canon is featured in VentureOutsource.com's list of top 100 people

influencing global electronics manufacturing services (EMS) for the year

2012

As a part of Corporate Social Responsibility, Canon had launched the

Green Cycle Program in 2010 for Printer and Cartridge E-Waste

management. Canon has tied up with authorized E-Waste recycler TIC

Group India Pvt Ltd who would be collecting and disposing the e-waste

from the 45 OIC's

In line with its continued commitment to the society, Canon India donated

an eye check-up machine to the vision centre at Ferozepur Namak village

in Mewat District of Haryana



Recent Accolades:

"Editors Pick", by Digit magazine to Canon IXUS 255 HS

"Zero 1 winner", by Digit magazine to EOS 70D in 2013

"T3 Winner" to IXUS 140 by T3 magazine in 2013

"Best Imaging Device of the year" at NDTV Gadget Guru Awards 2012,

for Canon PSA 100 Digital Camera

"Best SLR Camera" awarded by Better Photogrpahy to EOS 1100D

"Best Professional DSLR of the year", awarded by Smart Photography

magazine for EOS 5D Mark II

"Best mid priced DSLR of the year" by Smart Photography magazine for

EOS 600D

Asian Photography's"Digital SLR camera of the year, professional" for

EOS 5D Mark II

Smart Photography magzine's "Reader's Choice award"for camera of the

year under the Best Compact Digital Camera and Best Bridge camera

of the year category for SX40HS

"Best Rated Professional DSLR" for the Canon EOS 5D II by Maxim

magazine

"Best Camera in the Point & Shoot Category" at TechLife Awards 2012

for Canon PowerShot S95



Product Portfolio of Canon India



INDUSTRY ANALYSIS

The world photographic products market generated sales of over $55

billion in 2010, according to MarketLine. Cameras lead the market, with

sales of close to $35 billion, or more than 60% of the overall market.

Growth is expected to accelerate at a rate of more than 3% yearly,

bringing the market to over $65 billion by 2015. Photographic products

encompass cameras, camcorders, optical instruments and other

photographic equipment. Over 140 million units were digital camera units

were sold in 2010, with the figure predicted to exceed 145 million in 2011,

according to reports. Digital photography continues to encroach on sales



of traditional cameras and films. This trend is expected to continue over

the years to come.

The world printing machinery and supplies industry is expected to exceed

$21 billion by 2015, according to Global Industry Analysts. The market is

driven by demand for digital color presses, specialty printers and inkjet

printers. The changing landscape of technology also fuels the printing

machinery and supplies industry, with new products, innovation and

dynamic media giving the market a significant boost.

The printing market has grown alongside expansion in the PC market, with

many computer owners also owning printers. Demand for inkjet printers

and PC-free printers, which take flash memory cards used in digital

cameras, continues to rise. The printing industry has seen the pace of

progress pick up due to digital technology. Digitalization has made printing

more efficient and facilitates workflow as digital printing minimizes plate

setting and press down time, which in turn reduces costs in terms of batch

changeover and set-up.

The printing market is highly competitive, with companies required to

speed up production and offer consumers personalized printing solutions.

The photocopying market has benefited from economic growth and the

widespread



adoption of in-house photocopying by business offices. Digital

photocopiers are a particularly strong growth segment within the

photocopying industry.

BACKGROUND

TRENDS

India’s ongoing boom continues to drive sales of imaging devices in the

country. Many people in India were among the primary consumers of imaging

devices such as digital cameras and digital camcorders during the review

period. In addition, the growing popularity of social media platforms such as

Facebook and Twitter are also driving growth in demand for imaging devices

in India.

COMPETITIVE LANDSCAPE

There is a significant business opportunity for all manufacturers to cater to

the imaging devices needs of this increasingly affluent segment of Indian

society. To better understand the needs of consumer groups ii is important to

better combine price, quality, design and connectivity.

PROSPECTS

The major trend in imaging devices in India during the forecast period is

expected to be the rising demand for high-end products, in particular premium

DSLR cameras. The key consumers of these premium digital cameras are

likely to continue being drawn mainly from the upper sections of India’s



society, many of whom already own compact digital cameras. Although DSLR

cameras remains a niche area with significant growth potential, rising sales of

premium imaging devices are not expected to have any major impact on value

sales of imaging devices during the forecast period as the proportion of total

imaging devices value sales accounted for by expensive premium devices is

set to remain very low.

COMPETITORS OF CANON

The main competitors of Canon are:

Nikon Richo

Sony Konica Minolta

Lecia Hewlett Packard

Pentax Xerox

Olympus Epson

KEY DEVELOPMENTS AND TRENDS THAT HAVE A POSITIVE

IMPACT ON THE SECTOR

Some of the key trends that have a positive impact on the sector are:

Growing consuming class (defined as people having annual income of

US$ 980 (INR45000 or above) that has greater disposable income and



propensity to spend. It has been estimated by NCAER that this group will

constitute over 80 per cent of the population of India by 2009-10

Lifestyle changes such as greater exposure to global trends and

increasing affinity for convenience and lifestyle products;

Increasing urbanization, emergence of nuclear double income families;

Low penetration levels of most consumer durables. For example, in 2002,

only 66% of middle-income households had a TV set, only 28 per cent of

the urban households possessed a refrigerator, while just a little over 15

per cent owned an air cooler. Despite a population of more than 1 billion

people, only 16 million computers were used in India in March 2005.

Increased government and private industry spending on sectors such as

defense and aerospace. The Indian aviation sector, for example, has

placed orders for more than 350 aircrafts with a list price of about US$ 26

billion.

THE FUTURE

On the whole the domestic market in India is very attractive from the point of view

of the electronics sector, and current trends indicate high growth potential for the

sector in the future.

Challenges

Major challenges facing the Indian electronic manufacturing market are an

infrastructure that needs to be improved at the earliest possibility, easing of

foreign investment procedures, which is underway, and a restructured



government tariff that now makes domestically manufactured goods more

expensive than imported goods with zero tariff.

There are also other problems, which are hampering the growth of the Indian

electronic industry. Some of them are:

• Lack of World-class infrastructure.

• Lack of clear-cut government policy for the industry.

• Very little expenditure in Research and Development area.

• Power of Marketing not harnessed to the maximum

Opportunities

While the Electronics sector in India is currently small, there are several

advantages that India offers that can be effectively leveraged to achieve higher

growth.

These can be categorized under three heads:

• Manpower

• Market Demand

• Policy and Regulatory Support

CANON INDIA CSR

Eye Care - Set up of vision centre.



Education- establish learning centre in the government school,

infrastructural development.

Environment – Tree plantation, rain water harvesting.

To make sustainable impact in the core areas supported by iCare, CSR at Canon

India has adopted a village to develop and strengthen education and eye care

facilities in the community. The overall objective of the project is to make the

vision centre sustainable and improve the enrolment rate in the school in the next

three years. With an approximate population of 9000 in 1100 household,

Ferozpur Namalk Village is 40 km drive from the corporate office, A total of three

villages were shortlisted and post a need assessment, Freozpur Namak was

selected. Some of the criterias that were kept in the mind while accessing the

village were total population, distance from corporate office, no health eye/ clinic

availability and poor condition of the government school and relationship of the

NGO’s with community and the Panchayat.

The implementing partner of the project is CAF India with direct support in the

village from NGO - SARD and ICARE hospital in Noida.

The organizations are experts in the area of education and eye care have been

shortlisted based on the credibility check done by CAF India, a UK based

international organization.

The objective of the education project in the government school is to improve

enrolment of children in school and deliver quality education.



The school engages 1500 children upto class 10 with only 9 teachers and suffers

from low attendance and enrolment rate. There are no functional toilets in the

school resulting in majority of class dropout after class 5.

The pipelines of the drinking water are broken which leaves only water tap for

1500 students. The support of Canon India includes establishment of a learning

centre ,improve source of drinking water through pipeline , taps and building

toilets for girls and training teachers in activities of like tree plantation rain water

harvesting will also be supported in the government school for an all round

development .

The vision centre on the other hand is the primary eye health centre providing

comprehensive eye check ups to all sections of community. Close interaction

with the community is developed so that with their participation promotion of eye

health education, childhood blindness, screening and awareness creation among

the villagers can be achieved. The centre will reach out to a population of 50,000,

registration fees of Rs10 /- will be changed to the villagers to eventually make the

centre self sustainable. Employee volunteering opportunities will be organized in

the village to support the three core areas, and build a personal connect between

the employees and the community.

Ways of motivating staff ?

Company takes the iniatives for the development of various abilities of staff by

the way of personal growth through training and coaching and so on. The



essential part of motivation is that employees have a cleared defined role,

healthy and respectful work environment, shared vision and strong efforts in

building capabilities of staff through learning and development. The company

also follows the rule of 15% promotion out of total staff every year.

Canon’s Services

Service has been the value creator in business. In its B2B operations comprising

of OIS and PPP divisions. 30% of revenues come from services. This is the most

profitable part of their business. They have over 350 service staffs in the

company of 1000 people .This service stream is growing at 18% a year and they

are planning various measures to expand their reach and grow this faster than

sales . As for now, Canon offers direct services in 30 locations in B2B segment.

In next 5years it is expected to rise to 100 towns.

In other towns, they have 120 plus partners who are also strong in service. The

other part of the service is B 2C service, where the company is having the

responsibility for the customers and it is not a profit centre .Canon offers 12 B2C

service in 12 towns directly with customer service centres and have exclusive

authorized service points called Canon care centres in other 35 town.

Managed Document Services Business of Canon

Canon MDS provides optimum fleet management which in turn helps to reduce

cost significantly and give more convenience to the users by taking prints at any



printer anywhere on the network . It provides job accounting and ruled based

printing which significantly results in cost saving to the organization. Canon is a

company which not only sells product but provides enterprise customer with

solution. At present they are serving 100 large enterprises with a major

contribution from banking and financial services , pharmaceuticals , automobiles

and real estate.

Maruti, Ranbaxy, DLF, BPTP, Mindtree, JP Morgan, Mylan Laboratories and Dr

Reddy ‘s Laboratories are some of its esteemed clients . The market size of its

large market size MDS’s is around 400 crores and Canon has dominant

25%market share.

For large organizations, printing is a non core capability and shifting it to efforts

like Canon can help them to reduce administration, IT work and cost overheads.

More movement from capital expenditure to operational expenditure ensures

there is no depreciation on equipment and every printer utilized in a best possible

manner. This is where MDS plays an important role in streamlining printing

infrastructure, saving cost, getting secure and eco friendly printing.

All clients claim that they are benefiting from Canon’s MDS solution. Canon also

prides itself on having strong endorsement from esteemed clients like Mindtree,

Cairn, YES Bank, Anand which have all witnessed huge cost savings by

outsourcing document services.

Marketing Initiatives To Promote Canon Brand



As Canon operation in India are both B2B and B2C space, its marketing

communication and customer outreach programmes keep Canon visible and

engaged with customers. As a matter of leadership statement and to reinforce its

brand messaging, they have taken neon signs at strategic landmark points in all

major airports in India .Canon will continue to invest in brand image building.

Nearly 8% of its revenues are spent on marketing and brand promotions.

Introduction to the topic Receivables Management:

Management of trade credit is commonly known as Management of Receivables.

Receivables are one of the three primary components of working capital, the

other being inventory and cash. Receivables occupy second important place

after inventories and thereby constitute a substantial portion of current assets in

several firms.

When customers purchase a product or service from a company, they often do

so using payment terms. In other words, they receive the product or service, but

pay for it later – usually on credit terms established by the company.



Accounts receivable represents the amounts customers owe as a result of the

company exchanging goods or services in return for the promise to pay.

Moving down the current assets section of the balance sheet generally involves

not only a decrease in liquidity but also an increase in risk. As far as the

Company is concerned, accounts receivable are riskier assets to assume than

both cash and short-term investments. There is no market for trading accounts

receivable since its value does not change over time the way a share price may.

Nevertheless, accounts receivable are an integral part of doing business in a

modern economy. Sales may be increased by allowing customers to pay at a

later date since some customers may be unable to pay for their purchases

immediately.

Income from a short-term investment such as stocks or bonds was not

considered revenue generated from the business. Instead, this income was

classified as “other revenues” in the income statement.



Accounts receivable, on the other hand, form part of the foundation of the

business, which is selling products or services to customers. An accounts

receivable item represents a sale to a customer and thus generates revenue as a

part of the routine business of the company. That is why sales generated using

credit terms are treated as operating revenue in the income statement.

Sale of goods on credit converts finished goods of a selling firm into receivables

or book debts, on their maturity these receivables are realized and cash is

generated.

Accounts receivables can hence be calculated as under :

The book debts or receivable arising out of credit has three dimensions:

I. It involves an element of risk, which should be carefully assessed. Unlike

cash sales credit sales are not risk less as the cash payment remains

unreceived.

II. It is based on economics value. The economic value in goods and

services passes to the buyer immediately when the sale is made in return

for an equivalent economic value expected by the seller from him to be

received later on.

III. It implies futurity, as the payment for the goods and services received by

the buyer is made by him to the firm on a future date.

Receivables, as are forms of investment in any enterprise manufacturing and

selling goods on credit basis, large sums of funds are tied up in trade debtors.


Accounts Receivable = Average daily credit sales * Average collection period


Hence, a great deal of careful analysis and proper management is exercised for

effective and efficient management of Receivables to ensure a positive

contribution towards increase in turnover and profits.

Purpose of Maintaining Receivables


Expansion of Sales

Higher Profit Levels

Helps fighting

Competition

Attracting Potential

Customers

Retaining Present

Customers

Quick Distribution

of goods.

Benefits of Maintaining Receivables


Cost of Maintaining Receivables:

Receivables are a type of investment made by a firm. Like other investments,

receivables too feature a drawback, which are required to be maintained for long that

it known as credit sanction. Credit sanction means tie up of funds with no purpose to

solve yet costing certain amount to the firm. Such costs associated with maintaining

receivables are detailed below:


Cost Associated with

Maintenance of Receivables

Capital CostAdministrative

CostDelinquency

Cost Default Cost

Credit Investigation and supervision cost

Collection Cost


Capital Cost: Maintenance of receivables by a firm leads to

blockage of its financial resources due to the tie log that exists

between the date of sale of goods to the customer and the date of

payment made by the customer. But the bitter fact remains that the

firm has to make several payments to the employees, suppliers of raw

materials and the like even during the period of time lag. As a

consequence, a firm is liable to make arrangements for meeting such

additional obligations from sources other than sales. Thus, a firm in the

course of expanding sales through receivables makes way for

additional capital costs.

Administrative Cost : If a firm liberalizes its credit policy for the

good reasons of either maximizing sales or minimizing erosion of

sales, it incurs two types of costs:

Credit Investigation and Supervision Cost: As

a result of lenient credit policy, there happens to be a

substantial increase in the number of debtors. As a result

the firm is required to analyze and supervise a large

volume of accounts at the cost of expenses related with



acquiring credit information either through outside

specialist agencies or form its own staff.

Collection Cost: A firm will have to intensify its

collection efforts so as to collect the outstanding bills

especially in case of customers who are financially less

sound. It includes additional expenses of credit

department incurred on the creation and maintenance of

staff, accounting records, stationary, postage and other

related items.

Delinquency Cost : This type of cost arises on account of delay in

payment on customer's part or the failure of the customers to make

payments of the receivables as and when they fall due after the expiry

of the credit period. Such debts are treated as doubtful debts.

They involve: -

Blocking of firm's funds for an extended period of time,

Costs associated with the collection of overheads, remainders

legal expenses and on initiating other collection efforts.

Default Cost:

Similar to delinquency cost is default cost. Delinquency cost arises as a

result of customers delay in payments of cash or his inability to make the

full payment from the firm of the receivables due to him. Default cost

emerges a result of complete failure of a defaulter (customer) to pay

anything to the firm in return of the goods purchased by him on credit.



When despite of all the efforts, the firm fails to realize the amount due to

its debtors because of him complete inability to pay for the same. The firm

treats such debts as bad debts, which are to be written off, as cannot be

recovers in any case.

FACTORS AFFECTING THE SIZE OF RECEIVABLES:


Bills Discounted

and Endorsement

Collection policy

Cash Discount

Credit Policy & Credit Period

Volume of Credit Sales

Terms of Sales

Stability of Sales

Factors determining

Investment in receivables.


1. Stability of Sales:

Stability of sales refers to the elements of continuity and consistency in the

sales. In other words the seasonal nature of sales violates the continuity of

sales in between the year. So, the sale of such a business in a particular

season would be large needing a large a size of receivables. Similarly, if a

firm supplies goods on installment basis it will require a large investment

in receivables.

2. Terms of Sale:

A firm may affect its sales either on cash basis or on credit basis. As a

matter of fact credit is the soul of a business. It also leads to higher profit

level through expansion of sales. The higher the volume of sales made on

credit, the higher will be the volume of receivables and vice-versa.

3. The Volume of Credit Sales:

It plays the most important role in determination of the level of

receivables. As the terms of trade remains more or less similar to most of

the industries. So, a firm dealing with a high level of sales will have large

volume of receivables.

4. Credit Policy and Credit Period:



A firm practicing lenient or relatively liberal credit policy its size of

receivables will be comparatively large than the firm with more rigid or

signet credit policy.

5. Cash Discount:

Cash discount on one hand attracts the customers for payments before

the lapse of credit period. As a tempting offer of lesser payments is

proposed to the customer in this system, if a customer succeeds in paying

within the stipulated period. On the other hand reduces the working capital

requirements of the concern thus, decreasing the receivables of the

organization.

6. Collection Policy :

The policy, practice and procedure adopted by a business enterprise in

granting credit, deciding as to the amount of credit and the procedure

selected for the collection of the same also greatly influence the level of

receivables of a concern. The more lenient or liberal to credit and

collection policies the more receivables are required for the purpose of

investment.

7. Bills Discounting and Endorsement:

If the firm opts for discounting its bills, with the bank or endorsing the bills

to the third party, for meeting its obligations. In such circumstances, it

would lower the level of receivables required in conducting business.



PRINCIPLES OF CREDIT MANAGEMENT:

In order to add profitability, soundness and effectiveness to receivables

management, an enterprise must make it a point to follow certain well-

established and duly recognized principles of credit management. The first of

these principles relate to the allocation of authority pertaining to credit and

collections of some specific management. The second principle puts stress on

the selection of proper credit terms. The third principles emphasizes a through

credit investigation before a decision on granting a credit is taken. And the last

principle touches upon the establishment of sound collection policies and

procedures:

1) Allocation or Authority:

The efficiency of a credit management in formulation and exestuation

of credit and collection policies largely depends upon the location of

credit department in the organizational structure of the Organization.

The aspect of authority allocation can be viewed under two concepts.



As per the first concept, it is placed under the direct responsibility of

chief finance officer for it being a function primarily financed by nature.

Further, credit and collection policies lay direct influence on the

solvency of the firm. For these reasons the credit and collection

function should be placed under the direct supervision of the

individuals who are responsible for the firm's financial position. There

are others who suggest that business firms should strictly enforce upon

their sales departments the principles that sales are insolate until the

value thereof is realized. Those favoring this aspect plead to place the

authority of allocation under the direct charge of the marketing

executive or the sales department. To conclude the reasonability to

administer credit and collections policies may be assigned either to a

financial executive or to marketing executive or to both of them jointly

depending upon the organizational structure and the objectives of the

firm.

2) Selection of Proper Credit Terms:

The receivables management of an enterprise is required to determine

the terms and conditions on the basis of which trade credit can be

sanctioned to the customers are of vital importance for an enterprise.

As the nature of the credit policy of an enterprise is decided on the

basis of components of credit policy. These components include; credit

period, cash discount and cash discount period. In practice, the credit



policy of firms, vary within the range of lenient and stringent. A firm that

tends to grant long period credits and its debtors include even those

customers whose financial position is doubtful. Such a firm is said to be

following lenient credit policy. Contrary to this, a firm providing credit

sales for a relatively short period of time that too on highly selective

basis only to those customers who are financially strong and have

proven their credit worthiness is said to be following stringent credit

policy.

3) Credit Investigation:

A firm if desires to maintain effective and efficient receivables

management of receivables must undertake a thorough investigation

before deciding to grant credit to a customer. The investigation is

required to be carried on with respect to the credit worthiness and

financial soundness of the debtors, so as to prevent the receivables for

falling into the category of bad debts later on at the time of collection.

Credit investigation is not only carried on beforehand. But in the case

of firms practicing liberal credit policy such investigation may be

required to be conducted when a debtors fails to make payments of

receivables due on him even after the expiry of credit sale so as to

save doubtful debts from becoming bad debts.

4) Sound Collection Policies and Procedures:



Receivables management is linked with a good degree of risk. As a

few debtors are slow payers and some are non-payers. How-so-ever

efficient and effective a receivables management may be the element

of risk cannot be avoided altogether but can be minimized to a great

extent. It is for this reason the essence of sound collection policies and

procedures arises. A sound collection policy aims at accelerating

collection form slow payer and reducing bad debts losses. As a good

collection polices ensures prompt and regular collection by adopting

collection procedures in a clear-cut sequence.

Two factors are taken into consideration when deciding on how stringent or

lenient the company’s credit policy should be:

The company’s own financial situation. The stronger it is, the better

it can afford to make sales on credit.

The company’s competitive situation. The more competition a

company has, the greater the pressure to extend credit in order to

increase sales.

ASPECTS OF CREDIT POLICY:

A credit policy establishes guidelines that govern grant or reject credit to a

customer, what should be the level of credit granted to a customer etc. A

credit policy can be said to have a direct effect on the volume of

investment a company desires to make in receivables.



Two very important considerations involved in incurring additional credit

risk are: the market for a company's product and its capacity to satisfy that

market. If the demand for the seller's product is greater than its capacity to

produce, then it would be more selective in granting credit to its

customers. Conversely, if the supply of the product exceeds the demand,

the seller would be more likely to lower credit standards with resulting

greater risk. Such a condition would appear in case of a company having

excess capacity coupled with high profitability and increased sales

volume.

Credit policy of every company is at large influenced by two conflicting

objectives i.e. Liquidity and Profitability.

Liquidity position of a firm can be easily improved without affecting

profitability by reducing the duration of the period for which the credit is

granted and further by collecting the realized value of receivables as soon

as they fall due.

To improve profitability one can resort to lenient credit policy as a booster

of sales, but the implications are: -

1) Chances of extending credit to those with week credit rating.

2) Unduly long credit terms.

3) Tendency to expand credit to suit customer's needs; and

4) Lack of attention to over dues accounts.



COLLECTION OF ACCOUNTS RECEIVABLES:

Despite of firm's best precautionary efforts in escaping the bad and

doubtful debts, there always exist certain number of unpaid accounts on

the due date. Three-well-known causes of failure of such payments on the

part of debtors (i.e. firm's customer) can be sited as:

1. It may happen at times that the due date of payment slips from debtors

mind and he delays in making good the payments at the right time.

2. It may incidentally occur at the time of grant of credit that a firm fails to

access and interpret the character, capacity, capital, Collateral and

conditions correctly and appropriately.

3. There may arise a considerable change in the financial position of a

debtor after the credit has been granted to him by the firm.

All the above stated reasons compel a firm to formulate a collection program

to obtain recovery or receivables from delinquent account. Such program may

consist of following steps:

Monitoring the state of receivables,

Dispatch of letters to customers whose due date is near.

Telegraphic and telephone advice to customers around the due date.

Threat of legal action to overdue accounts, and

Legal actions against overdue accounts.



Types of Collection Efforts:

If the credit period granted to customer lapses but he does not pay. The

firm begins with a polite letter of reminder reflecting demand of payment.

This may be followed by telegram or telephone or even a personal visit by

firm's representative. After that a firm may proceed for legal action if the

amount of receivables will remains unpaid. It should be noted that as an

account becomes more and more overdue, the collection efforts becomes

more personal and strict.

Best Practices in Receivables Management:

1. Credit Management: It’s surprising how many smaller companies are

penny wise and pound-foolish. They will try to save the $30-$50 cost of a

legitimate credit report, either by doing nothing at all and hoping for the

best, or relying on cut-rate credit services costing (and usually worth no

more than) a couple of dollars. This is like rolling the dice: saving a few

hundred dollars in credit report costs while taking the chance of thousands

of dollars in bad debts simply does not make sense.

2. Shorten Payment Terms: Forget the 'Net 30' or 'Net 45.' Use 'Payment

due upon receipt”, or Cash-in-Advance for problem payers or those with

no history with you.

3. Offer Early Payment Discounts: If you do extend trade credit, try a prompt

payment cash discount, such as 2%/10 Net 20 Days. Customers want to



save a couple bucks, too, and are more inclined to pay up in early if they

can get a discount.

4. Enforce Early-Payment Discounts. If you give a discount, whatever you

do, don’t get into the habit of letting the customer have the discount and

paying late, too.

5. Bill promptly. Amazing how many small companies bill weekly, monthly, or

when someone gets time. Then mail or transmit the invoice immediately

vs. when the receptionist gets around to it.

6. E-Mail Invoices: Using electronic billing or email, deliver invoices to

customers instantly. You can also ask them for a confirmation of payment

date in the email.

7. Offer Electronic Payment Options: Make sure you take payment via

electronic funds transfer -- include your EFT banking information (bank,

branch and account number) on your invoices. Be flexible; accept PayPal

and credit cards, too.

8. Collection Management: Phone, Phone, Phone: Don't be lazy, pick up the

phone and call delinquent accounts directly because the personal touch --

if handled professionally - is much more effective than e-mail and letters.

To get even better results in the future, call back to let the customer know

you received the payment. They will remember that.

9. Accounts Receivable Management: Monitor all accounts receivable at

least on a weekly basis and follow up on those customers when due, or in



the case of very large invoices, a few days ahead of the due date as a

friendly reminder to them that it is important to you.

10.Keep Records: Although this should be obvious, keep a running record of

all contacts, including e-mails sent, phone calls made, and customer

responses received.

11.Look at credit and accounts receivable tracking and workflow systems that

help you manage the entire credit to payment cycle. A well-designed

system will ensure that nothing slips through the cracks. There are a

number of Internet based systems for all sizes of companies.

12.Call in a professional credit and accounts receivable outsourcing service.

You will save you money, credit losses, and overhead in the long-term.

Plus, you know that the job will get done without all the management

hassles.

13.Before an overdue account turns into a bad debt, contact a Collection

Agency. Forget about selling to that customer again, unless it's cash up

front, but then again, customers that don't pay are not customers you

need.



ACCOUNT RECIEVABLES MANAGEMENT-

CANON’S PRESPECTIVE

In Canon India Pvt. Ltd the entire finance department is sub divided into four sub-

departments, namely:

1. Accounting

2. Credit Collection,

3. Planning,

4. Legal and Taxation.


Finance Department

Accounting Credit Collection Planning Legal and

Taxation


Account receivables of the company are handled by the credit collection

department under finance. Members of the Credit collection team are responsible

for :

1) Generating the Invoice at the end of every month,

2) Sending the Invoice to the customers,

3) Receiving acknowledgement,

4) Following up with the customer,

5) Updating the payments made by the customer

6) Investigating the credit worthiness of the customer and all such related

tasks.

Canon has 8 major offices in India, which have their own credit collection team

looking after the credit of their region.

During my summer internship project I got an opportunity to work for the Credit

Collection team of CIPL offering Office Imaging products.

In Canon India Pvt. Ltd there are various divisions of the business on the basis of

the products that company offers to its customers, such as:

1. OIS – Office Imaging products

2. CSP – Consumer System Products

3. ICP – Image Communication Product and;

4. PPP – Professional Printing Products.

Each category of products have their own set of customers to cater to.



Office Imaging products:

This includes products which offer complete one stop solution to all the printing

and scanning needs of the customer. The products under this category are heavy

duty and are meant for corporate and professional use only.

The various products under this category are:

1) Digital Copiers- B/W and Color,

2) Multi functional Devices, and

3) Hi speed Scanners.

Canon Service Channel


Service Channel

Direct Through Partners


The Canon offers direct service to its customers through their engineers for all

the locations where ever they have their warehouses.

For the rest of the locations they have chosen partners who provide services on

behalf of canon.

The billing in both the cases is done by the Canon only. However where the

services are provided through the partner, member of the credit collection team

conducts the entire follow up process starting from mailing the invoices to

receiving and updating the payment details.

And for the locations where canon provides direct services to its customers

through their engineers, the collection process is conducted by the collection

agencies hired by CIPL under the vigilance of the credit collection team.

Sale of Canon Office Imaging Products:

CIPL offers its products either through outright sale or on rental basis to its

customers. Since the Office Imaging Products are bulky- one stop solution

products, they require hefty amounts to be invested in the purchase to take

place.

The companies which require such machines in large number prefer to obtain

them on rental basis rather than going for outright purchase, and blocking

substantial amount of money in the assets.



During my Summer Internship in Canon I got an opportunity to work under the

Credit Collection team which was responsible for collection of machine rent and

the total guarantee charges from the customers.

The chart given below explains how the sale is initiated in Canon India Pvt.

Limited.

In Canon, the customer can take charge of the machine through the following two

ways:


Canon India Pvt. Ltd

On Rent Outright Sale

Total Guarantee Agreement

Self Maintenance

Total Guarantee and Rental Agreement


1) Outright Sale – where the ownership of the machine is transferred to the

customer.

2) On Rent – under this, the customer signs an agreement with Canon

whereby he agrees to pay the company a monthly rent for using the asset

of the company. There is no transfer of ownership of the asset in this

case.

Outright Sale: This is the sales agreement under which Canon sells its

machines to the customers through its network of dealers spread throughout the

country. The ownership of the asset is transferred to the customer through sales

agreement. The customer can however sign the total guarantee agreement with

the company under which on certain terms and conditions, company agrees to

provide service for the machine along with consumables charging certain amount

per copy from the customer.

As the ownership of the machine is now with the customer, the customer can

also get the service down on their own through any of the sources.

On rent: In this, the customer signs the rental agreement, whereby he agrees to

pay monthly rent to the company for using the asset of the company. The

ownership of the asset lies with company and the customer is just the user.

However at the end of the contract, the customer can take the ownership of the

assets if it seems fit for use to him.



Since the ownership of the machine still remains with the canon, the customer is

bound to sign the total guarantee agreement as well.

Therefore the total amount billed to customer in case of rental is Fixed Monthly

Rent plus Total Guarantee Charges as per the number of copies printed.

Process of Sales

Outright Sales:

The process for outright sales is very simple and easy and is explained through

the following steps.


Total Amount Charged = Fixed Monthly Rent + TG charges


Step 1: Customer approaches the dealer with his requirements,

Step 2: Dealer studies the requirement of the customer and suggests him a

product which is best suited to his needs,

Step 3: Customer studies the specification of the product and its cost and does

his own analysis to see if product fits well with his requirement and the budget,

Step 4: Customer if satisfied decides to purchase the product from the dealer.

Step 5: Dealer generates the invoice - signifying the transfer of ownership and

the payment is made by the customer.

Step 6: The customer also has an option of signing the TG Agreement i.e. Total

Guarantee, where by company agrees to maintain the machine for a period

mentioned in the agreement.

Step 7: After the payment is made, machine is made available and installed in

the location of the customer and is handed over to the customer in up and

running condition.

This completes the entire sales procedure under outright sales.

On Rent:

When the machine is offered to the customer on rental basis, the complexity of

the entire process increases, as the ownership of the asset still lies with the

company. The asset is only given to the customer for using it for a period

mentioned in the agreement, which is generally 3 years.

The company does not prefer to provide machines on rental basis due to

possibility of default risk and hence their team always first pitches for outright



sales. The majority of machines that are given to the customer on rental basis

are repeat purchases i.e. to the existing customers only.



The following are the steps required to be fulfilled for providing machines on rent

to the customer.

Step 1: Customer approaches the sales team requesting to install the machine

on rent.

Step 2: The sales team asks the credit and collection department of finance to

validate the credit worthiness of the customer.

a) Existing Customer: If it’s an existing customer, the credit collection

department looks at the amount outstanding from the customer, his

payment schedule over the period, days of rent outstanding and judges

the credit worthiness of the customer.

b) New Customer: For new customer, there is a credit rating card on which

scores are given to the customers against the various parameters

mentioned in the card. The higher the score the less risky is the customer.

Step 3: On getting the approval from the credit collection team, the sales team

goes ahead with the sales.

Step 4: The sales person then quotes the monthly rent to the customer and also

the fixed TG charges for the maintenance of the machine.

Step 5: The customer does the cost benefit analysis before taking the final

decision of signing the agreement.

Step 6: After the customer is satisfied regarding the cost and the benefits of the

deal, the sales team gets the Rental agreement and the TG agreement signed by

the customer. Both the agreements govern the relationship between the

customer and the company.



Step 7: The machine is then installed at the customer’s site and the installation

report is generated. The installation report is signed both by the customer and

the marketing engineer. The installation report contains information regarding the

Machine model no., Machine no. which is identical, the date of installation,

opening meter reading etc.

Step 8: The sales process is closed here. After the installation is done, the sales

team hands over the installation report, the rental agreement and the total

guarantee agreement to the credit collection team so that the billing could be

done for the period given in the agreement.

PRINCIPLES OF CREDIT MANAGEMENT – Canon’s Perspective:

1) Allocation or Authority: In Canon India Private limited, the accounts

receivable management is a function of credit collection department and is

located under the finance department. Due to the strategic importance of

the credit and collection policies which directly influence the solvency of

the firm, the department directly reports to the chief financing officer of the

company.

2) Selection of a proper credit terms: The various components of credit

terms are: Credit period, cash discount and cash discount period etc.

These credit terms form basis for the credit policy of the company. The

credit policy of the firm can vary from being lenient to stringent depending

on the credit terms.



In Canon the credit policy is neither lenient nor too stringent. The credit

period given in the agreement is for 7 days, after which the company has

the right to block the machine of the customer. However the company

generally offers a credit period of 1 month to its customers and this also

varies from customer to customer. There is no such written provision for

Cash discount in the company, but there are cases where it is given to the

customer on the approval of the senior management of the company.

3) Credit Investigation of the customer: To keep a check on the customer

default risk, it is very important for the company to have a proper credit

investigation mechanism in place. If the credit is extended to the

financially weak customer, it puts the company’s money at risk.

In Canon there are various parameters on the basis of which the scores

are given to the customers.

The various parameters include:

a) Constitution of organization,

b) Type of Organization,

c) Recognition of Organization

d) Turnover

e) Profitability

f) Previous relationship with Canon

g) Statutory Compliance

h) Order details such as order value, advance value etc.



After the scores are allotted to the customers on these following

parameters, the total of the score decides whose approval in the

organization is required.

The following table shows the Score range and the approving authority

Approving Authority Score

Manager- Credit Control >60

Credit Head 51-60

Chief Financial Officer <51

The Higher is the score of the customer, the more financially sound is his

condition. So as the score gets down the approving authority gets higher

in the organization.

4) Sound Collection Policies and Procedures: A company could

either have slow paying debtors or non paying debtors. To maintain the

flow of its receivables it is very important for the company to have sound

collection policies and procedures in place.

In Canon, the credit collection team looks after the collection of

receivables from the debtors. It starts from sending the invoices to the

customers and following up with them to maintain the regular flow of

payments.

Collection of Account receivables in Canon



The primary reasons that I have observed, because of which the customer

defaults in making the payments are as follows:

a) Due Date slips from the mind of the Customer,

b) Invoices do not reach him,

c) Change in the financial position of the customer,

d) Unclear understanding the terms of agreement,

To maintain the flow of accounts receivables, canon has the following

practices in place:

1) Reminding the customer as the payment date approaches,

2) Asking for the acknowledgement for the receipt of invoices ensuring

invoices have reached the client,

3) Constantly following up with the customer regarding the amount

outstanding the books of accounts,

4) Performing debtor aging to know the status of the days of rent

outstanding from the customers.

5) Blocking their machines in case of non-payments from the customer.

Collection process in Canon



Canon provides services to its customers either directly for few of the location

through its marketing engineers or through its partners who on behalf of canon

looks after their machines in field.



In case where service is provided directly, the collecting agencies hired by canon

conducts the collection process for the company, whereas in the case where the

services are provided through the partners the entire collection process is

conducted by the member of the credit collection team.

Best Practices of Receivable management adopted by Canon:

1) Shorten Payment Terms: Forget the 'Net 30' or 'Net 45.' Use 'Payment

due upon receipt”, or Cash-in-Advance for problem payers or those with

no history with the company.

2) Mail Invoices: Using electronic billing or email, deliver invoices to

customers instantly and asking them for a confirmation of payment date in

the email.

3) Offer Electronic Payment Options: The Company accepts the payment

through EFT’s to make it convenient for the customers to make the

payments.

4) Collection Management: Member of the collection team picks up the

phone and call delinquent accounts directly because it is believed the

personal touch -- if handled professionally - is much more effective than e-

mail and letters. To get even better results in the future, people at canon

also acknowledge the payments received.

5)


Documents

Canon - Second Part