NNNLK)

Summer Internship Project Report
on
A STUDY OF RECEIVABLE MANAGEMENT AND ROLE OF
e-PAYMENT IN INDIAN OIL CORPORATION LTD.
Submitted towards the Partial Fulfillment
of
Post-Graduate Diploma in Management
(Approved by AICTE, Government of India)
ACADEMIC SESSION
2009-2011
Under the kind guidance of
Industry Guide College Guide

Mr. SANJAY MURARKA Dr. NEERAJ SANGHI
Dy. Manager (F), WBSO Faculty
Indian Oil Corporation Ltd. IMS, Ghaziabad
Submitted by
DIPANJAN GUHA
BM-09066
Date:22nd July 2010
1 DipanjanGuha,IMSGhaziabad
Student Declaration
I, Dipanjan Guha to the best of my knowledge & belief, hereby declare that the
project report
entitled :
“A Study of Receivable Management and Role of e-Payment in Indian Oil Corporation
Ltd.”
is the result of my own work in the fulfillment of academic requirement. The
training is done in
Indian Oil Corporation Limited (IOCL) [Eastern Region,Marketing Division, West
Bengal State
Office] for a period of two months commencing from 06.05.2010 to 06.07.2010. This
project
work is submitted to Institute of Management Studies, Ghaziabad. As well as in
Indian Oil
Corporation Limited[Eastern Region, Marketing Division, West Bengal State Office].
It is
not to be used copied or edited by any person. Written order has to be taken from
appropriate
authority for that.
Dipanjan Guha
PGDM (Finance)
BM-09066
Institute of Management Studies
Ghaziabad
2 INDIANOILCORPORATIONLIMITED(IOCL)
CERTIFICATE
Hereby it is certified that the project work entitled – “A Study of Receivable

Management and
Role of e-Payment in Indian Oil Corporation Ltd” is a work carried out by
Dipanjan Guha
Management Trainee
Institute of Management Studies,
Ghaziabad.
It is certified that all the subjective matter carry out by him is verified. The
project report has
been approved as it satisfies the academic requirements in respect of Project Work.
---------------------------------------
Dr. Neeraj Sanghi

Faculty Guide
IMS, Ghaziabad
3  DipanjanGuha,IMSGhaziabad
ABSTRACT
Indian Oil Corporation Limited, with an yearly turnover of about 2 Lac Crores is
the biggest
Company in India in terms of sales. It has once again topped the Indian Companies
in the
Fortune 500 list of Companies with a rank of 125. In such a large sized corporation
the common
problem is the Receivable Management and formulating a sound Credit Policy and
Collection
Procedure. In this fluctuating Oil Market it is very difficult to maintain the
level of the Sundry
Debtors and hence the Profitability. Moreover the Private Companies are entering
the Oil
Industry which has provided a tough competition for IOCL. In this study the Ratios
are analyzed
to interpret the Financial Status of the Corporation and then it is compared with
the market
Competitors. The Debtors of the Eastern Region has been analysed in details and a
few probable
solutions to the existing problems has been formulated.
4  INDIANOILCORPORATIONLIMITED(IOCL)
Acknowledgement
It’s a privilege to be associated with Indian Oil Corporation Limited, a fortune

‘Global 500’
Company, India’s 2nd most top brand also world’s 18th best largest company.
This acknowledgement is not only the means of formality, but to me, it is a way by
which I am
getting the opportunity to show the deep sense of gratitude and obligation to all
the people who
have provided me with inspiration, guidance and help during the preparation of the
project.
At the very outset, I would like to express my gratitude from bottom of my heart to
Mr. Debasis
Bhattcharya [ Chief Manager,T & D ] for giving me the opportunity to do my Summer
Internship Project in this esteemed organization.
I articulate my sincere gratitude to my project guide Mr. Sanjay Murarka, Dy.
Manager (F),
WBSO Indian Oil Corporation Ltd. who has spend his valuable time and guided me
throughout the training process in spite his busy schedule, in shaping of my
project.
I am also thankful to Mr. Vikash Agarwal, A.M.(F), WBSO IOCL and Mr. Aritra Biswas,
AO, WBSO, IOCL for guiding me throughout the project providing me with the required
information about Indian Oil.
I also like to thank Dr R.K. Bharadwaj, Director General,IMS Ghaziabad who helped
to
provide me the opportunity to undergo my summer Intership Project in Indian Oil.
I would also like to express my indebtedness to my faculty guide Dr. Neeraj Sanghi,
Faculty
IMS who helped me in preceding my project work, which ultimately resulted in
successful
completion of the project.
But last not the least I am thankful to my parents, friends and all well wishers
for blessing me for
my success.
Dipanjan Guha
PGDM(Finance)
BM-09066
IMS, Ghaziabad
TABLE OF CONTENTS
Sl. No. Particulars
Page No.
1. Introduction to Oil Industry in India

1
2. Company Profile of IOCL
2.1 Introduction
4 
2.2 Location, Salient Features
7
2.3  Vision, Mission and Values
11
2.4  Objectives and Obligations
13 
2.5 Product Profile, Markets, Organizational Structure of IOCL
15
2.6 Business of IOCL
19
3 . Literature Review
24 
4 . Objectives
25
5. Methodology
26
6 Receivable Management
6.1 Introduction
27
6.2 Ways to Manage Debtors
29
6.3  Reasons for Incurring Debts
3 4 
6.4  Confirmation of the Debts
3 5
6.5 Non Recovery of the debts
3 6
6.6 Various modes of Debt Collection with special emphasis on e-Collection
3 9
6.7 Role of SAP in Receivable Management
4 4 
6.8 Impact of debtors in the Working Capital Management of the Company
4 6
6.9 Different Ratios related to Debtor Management and Profitability
50
6.10 Cash Conversion Cycle
52
6.11 Credit Policies of IOCL and RTGS mode of Payment
54 
7 Analysis
7.1 Turnover Ratio
63 
7.2 Liquidity Ratio
66
7.3  Working Capital Analysis
68
7.4  Cash Conversion Cycle
73 
7.5 Analysis of Debtors in Eastern Region (DGS&D and Non DGS&D)
74 
7.6 Comparative analysis of IOCL with BPCL and HPCL
85
7.7 Analysis of Debtors under WBSO
92
8. Case Study
98
9. Conclusion and Recomendations
102
10. Limitations
104 
11. Bibliography and Reference
104 
LIST OF TABLES
Table. No Particulars
Page
1 Retail Market Share (as on Nov-2009)
3 
2 Salient Features of Implementation of SAP
4 5
3  DTR and ACP of IOCL from 2005-06 to 2009-10
63 
4  Schedule for Sundry Debtors from 2005-06 to 2008-09
64 
5 Liquidity Ratios of IOCL
66
6 Working Capital including Current Assets and Current Liabilities of
IOCL 68
7 Change of CA, CL and WC of IOCL from the previous years
69
8 Cash & Bank Balances of IOCL
72
9 Cash Conversion Cycle
73 
10 Sales in DGS&D Sector for 2008-09 & 2009-10
77
11 Sales Figure of DGS&D Customers on Month-wise basis in 2009-10(ER)
78
12 Outstanding from DGS&D as on 3 1.03 .2010 (ER)
79
13  Showing Outstanding as a Percentage of Sales in DGS&D Sector as on
79
14  IOCL`s Average Collection Period of DGS&D (ER) for 2009-10
3 1.03 .2010(ER)
81
15 Sales and Outstanding of Non DGS&D Customers till 3 1 March 2009 (ER)
83 
16 Average Collection Period of Non DGS&D Customers in 2009-10
84 
17 Comparison DTR and ACP of IOCL with HPCL and BPCL
85
18 Debtors as a percentage of Gross Sales for IOCL, HPCL and BPCL
86
19 Comparison of Liquidity Analysis of IOCL with HPCL and BPCL
87
20 CCC of HPCL
89
21 CCC of BPCL
89
22 Profitability Ratios of IOCL, HPCL and BPCL
90
23  Customerwise Tabulation of Outstanding and Beyond Credit Outstanding
93 
under WBSO
24  Productwise Tabulation of Outstanding and Beyond Credit Outstanding
95
under WBSO
25 Pivot Table showing the outstanding status Customerwise and Productwise
97
26 Invoice Details of M/s Rifle Factory, Ishapore
99
27 Breakup of the invoice of M/s Rifle Factory in ED, Sales Tax and Cess
100
LIST OF FIGURES
Fig. No. Particulars

Page
1 Structure of Oil Industry in India
2
2 Market Share of Different Companies in India
3 
3  Formation of Indian Oil Corporation Ltd.
5
4  Organisational Structure of IOCL
17
5 Pipeline Network of IOCL in India
20
6 Relation between Profitability and Liquidity
3 0
7 Debt Collection Procedure
3 4 
8 Flow chart showing Debt Recovery Process
3 9
9 Comparison of Conventional Method and Electronic Payment System
4 3 
10 Working Capital Cycle and Sources of Cash
4 9
11 Operating Cycle
52
12 Classification of Debts considered Unsecured & Good and Unsecured &
64 
13  Classification
Doubtful of Debts from Subsidiary Companies and Other Companies
65
14  Line Graph showing the different Liquidity Ratios of IOCL
66
15 Bar Graph showing Working Capital including Current Assets and Current
68
Liabilities of IOCL
16 Area Graph showing Breakup of Current Assets
70
17 Area Graph showing Breakup of Current Liabilities
71
18 Bar Graph showing the Cash and Bank Balance Trend of IOCL
72
19 Sales in DGS&D Sector for 2008-09 & 2009-10
77
20 Comparison of the Outstanding as a % of Sales in Eastern Region And
Overall 80
21 Comparison
for of IOCL`s ACP of DGS&D (ER) with Overall ACP for 2009-10
the Company
82
22 Comparison ofAACP of Non DGS&D Customers with Overall in 2009-10
84 
23  Comparison DTR and ACP of IOCL with HPCL and BPCL
85
24  Line graph comparing Current Ratio and Quick Ratios of IOCL, HPCL and
87
25 Comparison of CCC for IOCL, HPCL, BPCL
BPCL
89
26 Area graph showing Profitability Ratios of IOCL, HPCL and BPCL
90
27 Line Graph showing Return on Capital Employedand Return on Fixed
Assets 91
28 Bar chart showing Outstanding and Beyond Credit Outstanding under WBSO
93 
29 Line Graph showing the Beyond Credit Outstanding as a % of Outstanding
94 
3 0 Graph showing Productwise Outstanding under WBSO
95
OIL INDUSTRY OVERVIEW
Background
After the Indian Independence, the Oil Industry in India was a very small one in
size and Oil was
produced mainly from Assam and the total amount of Oil production was not more than
250,000
tones per year.
This small amount of production made the oil experts from different countries
predict the future
of the oil industry as a dull one and also doubted India's ability to search for
new oil reserves.
But the Government of India declared the Oil industry in India as the core sector
industry under
the Industrial Policy Resolution bill in the year 1954 , which helped the Oil
Industry in India
vastly.
Oil exploration and production in India is done by companies like NOC or National
Oil
Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the
oil
companies in India that are owned by the government under the Industrial Policy
Rule. The
National Oil Corporation during the 1970s used to produce and supply more than 70
percent of
the domestic need for the petroleum but by the end of this amount dropped to near
about 3 5 percent. This was because the demand on the one
hand was
increasing at a good rate and the production was declining in a
steady rate.
Oil Industry in India during the year 2004 -2005 fulfilled most of demand through
importing oil
from multiple oil producing countries. The Oil Industry in India itself produced
nearly 3 5 million
metric tons of Oil from the year 2001 to 2005. The Import that is done by the Oil
Industry in
India comes mostly from the Middle East Asia.
The Oil that is produced by the Oil Industry in India provides more than 3 5 percent
of the energy
that is primarily consumed by the people of India. This amount is expected to grow
further with
both economic and overall growth in terms of production as well as percentage. The
demand for
oil is predicted to go higher and higher with every passing decade and is expected
to reach an
amount of nearly 250 million metric ton by the year 2024 .
OIL INDUSTRY STRUCTURE
UPSTREAM DOWNSTREAM INDUSTRY

BODIES/
Exploration& Refining&
Production Marketing OTHERS
IOCL
Petroleum
ONGC
Planning&
(Refining& Analysis
Cell
Marketing)
Petroleum
India
International
HPCL
OilIndia (Refining&
Marketing) Centrefor
High
Limited
Technology
BPCL
(Refining&
Petroleum
Marketing)
Conversation
Research
Association
PrivateE&P
GAIL PetroFed
Companies–
(GasTransport&
Cairo,RIL,NIKO
Petrochemicals)
Oil
Industry
Safety
RIL
Directoriate
(Refining&
Marketing) Engineers
India
Ltd.
(Project
Consultant)
Fig.1: Structure of Oil Industry in India
Oil Industry Dynamics in India
At present, there are four PSUs namely, IOC, HPC, BPC and IBP (subsidiary of IOC)
marketing
oil products in the country. In addition, certain private players like Reliance,
Essar and Shell
have also in marketing rights for transportation fuels. Their marketing presence
today, however,
is not significant and is limited to about 13 70 outlets out of total retail outlet
strength of about
29,3 80 . Some additional players like ONGC, who have also been granted marketing
rights for
transportation fuels, are in the process of setting up retail outlets to integrate
across the entire
hydrocarbon value chain. The company – wise market share in sales is tabled below:
It is evident that the share of the private sector in meeting total consumption of
refined petroleum
products presently stands at around 15%. This proportion is however, expected to
grow
significantly in the coming years
Company Market Share (%)

IOC Group 4 6.2
BPCL 18.6
HPCL 16.5
Other PSUs 2.2
Total PSUs 83 .5
Private 16.5
Total 100
Table 1: Retail Market Share (as on Nov-2009)
Fig. 2: Market Share of Different Companies in India
COMPANY PROFILE
INTRODUCTION
In order to ensure greater efficiency and smoothe working in the petroleum sector ,
Government
of India decided to merge the refineneries and the distribution activities.
The Indian Refineries and Indian Oil Company were combined to form the giant Indian
Oil
Corporation (IOCL) on 1st September 1964 , with its registered office at Bombay. In
1967, the
pipeline division of the corporation was merged with the refineries division.
Research &
Development of Indian Oil Came into Existence in 1972. In October 1981 Assam Oil
Company
was nationalized and has been amalgamated with IOCL as Assam Oil Division(AOD).
Fig.3 : Formation of Indian Oil Corporation Ltd.
Beginning in 1959 as Indian Oil

Company Ltd., Indian Oil
Corporation
Ltd. was formed in 1964  with the
merger of Indian
Refineries Ltd.
(established 1958). Indian Oil
and its
subsidiaries account for 4 9%
petroleum
products market share, 4 0.4 %
refining
capacity and 69% downstream
sector
pipelines capacity in India
As the flagship national oil company in
the downstream sector, Indian Oil
reaches precious petroleum products to
millions of people everyday through a
countrywide network of about 3 4 ,000
sales points. They are backed for
supplies by 166 bulk storage terminals
and depots, 101 aviation fuel stations
and 89 Indane (LPGas) bottling plants.
About 7,100 bulk consumer pumps are
also in operation for the convenience of
large consumers, ensuring products and inventory at
their doorstep.
Indian Oil operates the largest and the widest network of petrol & diesel stations
in the country,
numbering over 17,600. It reaches Indane cooking gas to the doorsteps of over 50
million
households in nearly 2,700 markets through a network of about 5,000 Indane
distributors.
Indian Oil’s ISO-9002 certified Aviation Service commands over 62% market share in
aviation
fuel business, meeting the fuel needs of domestic and international flag carriers,
private airlines
and the Indian Defense Services. The Corporation also enjoys a do4 
minant share of the bulk consumer business, including that of railways, state
transport
undertakings, and industrial, agricultural and marine sectors.
LOCATION
Registered Office : Indian Oil Bhavan,

G-9, Ali Yavar Jung Marg,
Bandra(East), Mumbai-4 00 051
Corporate Office : 3 079/3 , Sadiqnagar,
J B Tito Marg, New Delhi- 110 04 9
Refineries Division
 Head Office : SCOPE Complex, Core-2
7, Institutional Area, Lodhi Road
New Delhi -110003 
 Barauni Refinery: P.O. Barauni Oil Refinery,
Dist. Begusarai -861 114  (Bihar)
 Gujarat Refinery: P.O. Jawahar Nagar,
Dist. Vadodara -3 91 3 20(Gujarat)
 Guwahati Refinery : P.O. Noonmati,
Guwahati-781020 (Assam)
 Haldia Refinery: P.O. Haldia Refinery
Dist. Midnapur-721 606 (West Bengal)
 Mathura Refinery: P.O. Mathura Refinery,
Mathura -281 005(Uttar Pradesh)
 Panipat Refinery: P.O. Panipat Refinery,
Panipat-13 214 0(Haryana)
 Bongaigaon Refinery: P.O. Dhaligaon
Dist. Chirang, Assam - 783  3 85
Marketing Division
 Head Office: G-9, Ali Yavar Jung Marg,
Bandra (East), Mumbai -4 00 051
 Northern Region: IndianOil Bhavan,
1, Aurobindo Marg, Yusuf Sarai
New Delhi -110016
 Eastern Region: IndianOil Bhavan,
2, Gariahat Road, South (Dhakuria)
Kolkata -700 068
 Western Region: 254 -C, Dr. Annie Besant Road,
Worli Colony, Mumbai -4 00 025
 Southern Region: IndianOil Bhavan
13 9, Nungambakkam High Road
R&D Centre
 R&D Centre: Sector 13  Faridabad -121 007(Haryana)
Pipelines Division
 Head Office: A-1 Udyog Marg,
Sector-1, Noida-2013 01
 Northern Region: P.O. Panipat Refinery
Panipat -13 2 14 0 (Haryana)
 Western Region: P.O. Box1007,Bedipara,
Morvi Road,Gauridad,
Rajkot-3 60 003 
 Southern Region: 13 9, Nungambakkam High Road
Chennai – 60003 4 
Assam Oil Division

Assam Oil Division: P.O. Digboi -768 171(Assam)
IBP Division
 IBP Division: 3 4 -A, Nirmal Chandra Street,
Kolkata - 700 013 
 Business Group(Cryogenics) Sewri Terminal II,
Sewri (East), Mumbai - 4 00 015
 Business Group(Cryogenics),
A-4 , MIDC, Ambad, Nashik - 4 22 010
Group Companies
 Chennai Petroleum Corporation Ltd.: 53 6, Anna Salai,
Teynampet, Chennai - 600 018
 IndianOil Technologies Ltd: SCOPE Complex, Core-2
7, Institutional Area, Lodhi
Road,
New Delhi-110003 
 IndianOil (Mauritius) Ltd.: Mer Rouge Port Louis
Maruritius
 IOC Middle East FZE: LOB 14 209, Jebel Ali Free
Zone,
P.O.Box: 2613 3 8
 Lanka IOC PLC: Lanka IOC Head Office Level
20,
West Tower, World Trade
Center,
Echelon Square, Colombo - 01,
Sri lanka
SALIENT FEATURES
• India’s Most Trusted Fuel Pump Brand (ET. Brand Equity-AC Nielson Survey 2007)
• India’s largest commercial enterprise with leading market shares in downstream
segment of oil business.
• Highest ranked Indian corporate in Fortune’s list of world’s 500 largest

Companies (2008::
116th)
• 20th largest petroleum company in the world- Fortune Global500
• Local Currency Rating of A1+(short-term) & LAA+(long-term) from ICRA
• India’s No.1 corporate in annual listing of Business Standards (BS
10000),Business India(BI
Superior 100) &Economic Time (ET 500).
VISION, MISSION AND VALUES
Vision
A major diversified, trans-national, integrated energy company, with national

leadership and a strong
environment conscience, playing a national role in oil security & public
distribution.
Mission
To achieve international standards of excellence in all aspects of energy and

diversified business with
focus on customer delight through value of products and services, and cost
reduction.
 To maximize creation of wealth, value and satisfaction for the stakeholders.

 To attain leadership in developing, adopting and assimilating state-of-the-
art technology
for competitive advantage.
 To provide technology and services through sustained Research and
Development.
 To foster a culture of participation and innovation for employee growth and
contribution.
 To cultivate high standards of business ethics and Total Quality Management
for a
strong corporate identity and brand equity.
 To help enrich the quality of life of the community and preserve ecological
balance and
heritage through a strong environment conscience.
Values
Care stands for: - Innovation stands for: -

Empathy Creativity
Understanding Ability to learn/absorb
Co-operation Flexibility
Empowerment Change
Passion stands for: - Trust stands for: -

Commitment Delivered Promises
Dedication Reliability
Pride Integrity
Inspiration Truthfulness
Ownership Transparency
Zeal & Zest
OBJECTIVES & OBLIGATIONS OF IOCL
Objectives:
• To serve the national interests in oil and related sectors in accordance

and consistent with
Government policies.
• To ensure maintenance of continuous and smooth supplies of petroleum
products by way
of crude oil refining, transportation marketing activities and to provide
appropriate
assistance to consumers to conserve and use petroleum products efficiently.
• To enhance the country's self-sufficiency in crude oil refining and build
expertise in
laying of crude oil and petroleum product pipelines.
• To further enhance marketing infrastructure and reseller network for
providing assured
service to customers throughout the country.
• To create a strong research&development base in refinery processes, product
formulations, pipeline transportation and alternative fuels
with a view to
minimizing/eliminating imports and to have next generation products.
• To optimize utilization of refining capacity and maximize distillate yield
and gross
refining margin.
• To maximize utilization of the existing facilities for improving efficiency
and increasing
productivity.
• To minimize fuel consumption and hydrocarbon loss in refineries and stock
loss in
marketing operations to effect energy conservation.
• To earn a reasonable rate of return on investment.
• To avail of all viable opportunities, both national and global, arising out
of the
Government of India’s policy of liberalization and reforms.
• To achieve higher growth through mergers, acquisitions, integration and
diversification
by harnessing new business opportunities in oil exploration production,
petrochemicals,
natural gas and downstream opportunities overseas.
• To inculcate strong ‘core values’ among the employees and continuously
update skill sets
for full exploitation of the new business opportunities.
• To develop operational synergies with subsidiaries and joint ventures and
continuously
engaged across the hydrocarbon value chain for the benefit of society at
large.
Financial Objectives:
• To ensure adequate return on the capital employed and maintain a reasonable

annual
dividend on equity capital.
• To ensure maximum economy in expenditure.
• To manage and operate all facilities in an efficient manner so as to
generate adequate
internal resources to meet revenue cost and requirements for project
investment, without
budgetary support.
• To develop long-term corporate plans to provide for adequate growth of the
Corporation’s business.
• To reduce the cost of production of petroleum products by means of
systematic cost
control measures and thereby sustain market leadership through cost
competitiveness.
• To complete all planned projects within the scheduled time and approved
cost.
Obligations:
Towards customers and dealers:- To provide prompt, courteous and efficient service
and
quality products at competitive prices.
Towards suppliers:- To ensure prompt dealings with integrity, impartiality and

courtesy and
help promote ancillary industries.
Towards employees:- To develop their capabilities and facilitate their advancement

through
appropriate training and career planning. To have fair dealings with recognised
representatives of
employees in pursuance of healthy industrial relations practices and sound
personnel policies.
Towards community:- To develop techno-economically viable and environment-friendly

products. To maintain the highest standards in respect of safety, environment
protection and
occupational health at all production units.
Towards Defence Services:- To maintain adequate supplies to Defence and other para-
military
services during normal as well as emergency situations.
PRODUCTS PROFILE (IOCL)
The Products produced by IOCL are broadly classified into the

following cases:
Class A:
1. Liquid Petroleum Gas (L.P.G)

Class B:
2. Motor Spirit (M.S.)/Gasoline

3 . Super Kerosene Oil (S.K.O)
4 . High Speed Diesel Oil (H.S.D)
Class C :
5. High Speed Diesel Oil (H.S.D)

6. Furnace Oil (F.O.)
7. Bitumen
8. Naphtha
9. Aviation Turbine Fuel (A.T.F)
Class D :
10. Mineral Turpentine Oil (M.T.O)

11. Jute Batching Oil (J.B.O)
12. Light Diesel Oil (L.D.O)
13 . Unleaded petroleum
14 . Lubes & Greases
15. Fuel & Feedstock
16. Super Kerosene Oil
MARKETS
IndianOil has one of the largest petroleum marketing and distribution networks in
Asia, with
over 3 4 ,000 marketing touch points. Its ubiquitous petrol/diesel stations are
located across
different terrains and regions of the Indian subcontinent.
From the icy heights of the Himalayas to the sun-soaked shores of Kerala, from
Kutch on India's
western tip to Kohima in the verdant North East, IndianOil is truly 'in every
heart, in every part'.
IndianOil's vast marketing infrastructure of petrol/diesel stations, Indane (LPG)
distributorships,
SERVO lubricants & greases outlets and large volume consumer pumps are backed by
bulk
storage terminals and installations, inland depots, aviation fuel stations, LPG
bottling plants and
lube blending plants amongst others. The countrywide marketing operations are
coordinated by
16 State Offices and over 100 decentralised administrative offices.
Several landmark surveys continue to rate IndianOil as the dominant energy brand in
the country
and an enduring symbol for high quality petroleum products and services. The
heritage and
iconic association that the brand invokes has been built over four decades of
commitment to
uninterrupted supply line of petroleum products to every part of the country, and
unique products
that cater not only to the functional requirements but also the aspirationalneeds
of millions of
customers.
IndianOil has been adjudged India's No. 1 brand by UK-based Brand Finance, an
independent
consultancy that deals with valuation of brands. It was also listed as India's
'Most Trusted Brand'
in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition,
IndianOil topped
The Hindu Businessline's "India's Most Valuable Brands" list. However, the value of
the
IndianOil brand is not just limited to its commercial role as an energy provider
but straddles the
entire value chain of gamut of exploration & production, refining, transportation &
marketing,
petrochemicals & natural gas and downstream marketing operations abroad. IndianOil
is a
national brand owned by over a billion Indians and that is a priceless value.
ORGANIZATION STRUCTURE OF IOCL:
Fig. 4 : Organisational Structure of IOCL
 STRUCTURE OF EASTERN REGION OFFICE:-
GM – Regional Service(Eastern Region)
G.M – Aviation
G.M – Human Resource
G.M – Finance
 STRUCTURE OF STATE OFFICE:-

There are 16 state office all over India. Under each state office there are
divisional
officers, state officers, plants, terminal & depots.
 STRUCTURE OF WEST REGIONAL STATE OFFICE (W.B.S.O):-

ED – W.B.S.O
CRSM – Retail Sales
D.G.M – Consumer Sales
D.G.M – Finance Sales
D.G.M – L.P.G
D.G.M – Operations
D.G.M – Lube
D.G.M – Law
 STRUCTURE OF HR DEPARTMENT UNDER W.B.S.O:-

One senior HR Managers
One HR Officer
 AREA OF OFFICES UNDER W.B.S.O:-

W.B.S.O has three area offices:
1. Durgapur area offices.
2. Kolkata area offices.
3 . Siliguri area offices.
 L.P.G UNDER W.B.S.O:-

The L.P.G plants under W.B.S.O are situated as the following places:
1. Budge Budge
2. Durgapur
3 . Kalyani
4 . Malda
5. Rangpo
6. Raninagar
7. Port Blair
 DEPOTS UNDER W.B.S.O:-

1. Hasimara
2. Kantapukur
3 . Malda
4 . Rangpo
BUSINESS OF IOCL
REFINING:
Born from the vision of achieving self-reliance in oil refining and marketing for
the nation,
IndianOil has gathered a luminous legacy of more than 100 years of accumulated
experiences in
all areas of petroleum refining by taking into its fold, the Digboi Refinery
commissioned in
1901.
IndianOil controls 10 of India’s 20 refineries. The group refining capacity is 60.2
million metric
tonnes per annum (MMTPA) or 1.2 million barrels per day -the largest share among
refining
companies in India. It accounts for 3 3 .8% share of national refining capacity.
The strength of IndianOil springs from its experience of operating the largest
number of
refineries in India and adapting to a variety of refining processes along the way.
The basket of
technologies, which are in operation in IndianOil refineries include:
Atmospheric/Vacuum
Distillation; Distillate FCC/Resid FCC; Hydrocracking; Catalytic Reforming,
Hydrogen
Generation; Delayed Coking; Lube Processing Units; Visbreaking; Merox Treatment;
Hydro-
Desulphirisation of Kerosene&Gasoil streams; Sulphur recovery; Dewaxing, Wax Hydro
finishing; Coke Calcining, etc.
The Corporation has commissioned several grassroot refineries and modern process
units.
Procedures for commissioning and start-up of individual units and the refinery have
been well
laid out and enshrined in various customized operating manuals, which are
continually updated.
IndianOil refineries have an ambitious growth plan with an outlay of about Rs.
55,000 crore for
capacity augmentation, de-bottlenecking, bottom upgradation and quality
upgradation. Major
projects under implementation include a 15 MMTPA grassroots refinery at Paradip,
Orissa,
Naphtha Cracker and Polymer Complex at Panipat, Panipat Refinery expansion from 12
MMTPA to 15 MMTPA, among others.
In addition, petrol quality upgradation projects are under implementation at
Panipat, Mathura,
Barauni, Guwahati and Digboi refineries proposed to be completed by the end of
2009.
On the environment front, all IndianOil refineries fully comply with the statutory
requirements.
Several Clean Development Mechanism projects have also been initiated. To address
concerns
on safety at the work place, a number of steps were taken during the year,
resulting in reduction
of the frequency of accidents.
Innovative strategies and knowledge-sharing are the tools available for converting
challenges
into opportunities for sustained organisational growth. With strategies and plans
for several
value-added projects in place, IndianOil refineries will continue to play a leading
role in the
downstream hydrocarbon sector for meeting the rising energy needs of our country.
PIPELINES:
Fig. 5: Pipeline Network of IOCL in India

Indian Oil Corporation Ltd. operates a network of 103 29 km long crude oil and
petroleum
product pipelines with a capacity of 71.60 million metric tonnes per annum. Cross-
country
pipelines are globally recognised as the safest, cost-effective, energy-efficient
and environment-
friendly mode for transportation of crude oil and petroleum products.
During the year 2008-09 IndianOil’s crude oil pipelines registered the throughput
of 3 8.4 6 million metric tonnes. Corporation’s largest crude oil handling facility
at Vadinar
marked the berthing of 4 000th tanker since inception. The terminal operates two
offshore Single
Point Mooring (SPM) systems, to feed Koyali, Mathura and Panipat refineries.
Raising efficiency and emerging as the least-cost supplier, IndianOil has added the
3 3 0-km
Paradip-Haldia crude oil pipeline (PHCPL) to its bustling pipeline network during
the year. The
PHCPL system has a Single Point Mooring installed 20-km off the Paradip coast. With
this, it is
now able to pump crude oil from Very Large Crude Carriers to the tank-farm set up
onshore and
onward to Haldia through the pipeline. The Pipeline has replaced the earlier system
of receipt of
crude oil at Haldia port through smaller tankers.
On the west coast, the Mundra-Panipat pipeline is being further augmented to
transport an
additional 3  Million Metric Tonne Per Annum (MMTPA) of crude oil to Panipat
Refinery, under
expansion from 12 to 15 MMTPA. Additional requirement of crude oil for Koyali,
Mathura and
Panipat refineries is planned to be met by de-bottlenecking and augmenting Salaya-
Mathura
Pipeline system.
IndianOil’s product pipelines, connecting its refineries directly to high-
consumption centres,
achieved a throughput of 20.92 million tonnes during 2008-09. IndianOil has now
joined the
select group of companies in India which owns and operates LPG pipelines by
building its first
such cross-country facility linking Panipat with Jalandhar. Apart from providing
better logistics,
this pipeline can transport 700,000 tonnes of LPG from Kohand near Panipat refinery
to
IndianOil’s bottling plants at Jalandhar and Nabha in Punjab. The pipeline will
also
simultaneously to meet the requirement of LPG at Una and Baddi in Himachal Pradesh
and at
Jammu and Leh in J&K.
Two pipelines linking the major airports of India have been commissioned during the
year to
transport Aviation Turbine Fuel to these airports. The 3 6 km long pipeline from
existing
Devangonthi terminal to New Bengaluru International Airport, Devanhalli, Bengaluru
was
commissioned in October 2008. The 95 km long ATF pipeline from CPCL to Chennai AFS
was
commissioned in December 2008.
In its continuous efforts of expanding the network IndianOil is implementing 290 km
long
product pipeline from Chennai to Bengaluru to facilitate cost effective positioning
of products at
consumption centre located in and around Bengaluru and to strengthen product
positioning
capabilities of CPCL Refinery. IndianOil is also implementing a 217 km long branch
pipeline
from Koyali-Sanganer Pipeline at Viramgam to existing scrapper station at Churwa
along with
use of a 14  km long existing pipeline from Churwa to Kandla.
One of the major product pipelines currently under execution is 290 km long
Chennai-Bengaluru
Pipeline. A 21-km spur line from Mathura to Bharatpur and a 94 -km branch line to
Hazira on the
Koyali-Dahej pipeline are also under implementation. A grassroots terminal facility
is being set
up at Ratlam to feed the local markets. A 118-km pipeline is being laid from
Bijwasan to Panipat
for transporting Naphtha from Mathura Refinery to the upcoming Naphtha Cracker unit
at
Panipat.
IndianOil sees gas pipelines as a major growth area in the future. The gas market
in India is
expanding fast, thanks to enhanced availability of the product from indigenous
sources and
through imports. The Corporation will commission its first regassified LNG pipeline
from Dadri
to Panipat (13 2 km) to synchronise with the completion of the first phase of the
power plant
coming up under the Naphtha Cracker project at Panipat.
IndianOil has translated the expertise of its personnel in pipeline operations into
a business
opportunity, by offering training and consultancy to several Indian and overseas
companies.
Currently, the Corporation is imparting training for personnel of the Greater Nile
Petroleum
Company, Sudan.
MARKETING
Reaching out to a Billion Hearts
IndianOil has one of the largest petroleum marketing and distribution networks in
Asia, with
over 3 5,000 marketing touch points. Its ubiquitous petrol/diesel stations are
located across
different terrains and regions of the Indian sub-continent. From the icy heights of
the Himalayas
to the sun-soaked shores of Kerala, from Kutch on India's western tip to Kohima in
the verdant
North East, IndianOil is truly 'in every heart, in every part'. IndianOil's vast
marketing
infrastructure of petrol/diesel stations, Indane (LPG) distributorships, SERVO
lubricants &
greases outlets and large volume consumer pumps are backed by bulk storage
terminals and
installations, inland depots, aviation fuel stations, LPG bottling plants and lube
blending plants
3 0 INDIANOILCORPORATIONLIMITED(IOCL)
amongst others. The countrywide marketing operations are coordinated by 16 State
Offices and over 100 decentralised administrative offices.
Several l and mark surveys continue to rate IndianOil as the dominant energy brand
in the
country and an enduring symbol for high quality petroleum products and services.
The heritage
and iconic association that the brand invokes has been built over four decades of
commitment to
uninterrupted supply line of petroleum products to every part of the country, and
unique products
that cater not only to the functional requirements but also the aspirational needs
of millions of
customers.
IndianOil has been adjudged India's No. 1 brand by UK-based Brand Finance, an
independent
consultancy that deals with valuation of brands. It was also listed as India's
'Most Trusted Brand'
in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition,
IndianOil topped
The Hindu Businessline's "India's Most Valuable Brands" list. However, the value of
the
IndianOil brand is not just limited to its commercial role as an energy provider
but straddles the
entire value chain of gamut of exploration & production, refining, transportation &
marketing,
petrochemicals & natural gas and downstream marketing operations abroad. IndianOil
is a
national brand owned by over a billion Indians and that is a priceless value.
3 1 DipanjanGuha,IMSGhaziabad
LITERATURE REVIEW:
A Prescription for Debt Recovery Management, Towards Reducing

Costs and Increasing Recovery of Receivables
Author: David Coyle, President,
Published by: SeeWind Design 2008
Debt recovery and collections managers are always looking for less costly and more
efficient
ways of collecting on bad debt. This is especially true in todays business climate
of diminished
budgets and pressures from restructuring. This paper reviews six debt recovery
management
best practices that ensure swift and accurate recuperation of receivables for less
operational cost
than is usual within a typical collections process. As well the workflow that
enables the
application of these best practices is described. Finally this paper outlines the
features and
benefits of FORCE, a business analysis and collections management software solution
that
incorporates the fully automated workflow and best practices discussed. The
prescription
suggested here focuses on the ability to uncover and see the business reality along
with the
capability to detect, diagnose and action opportunities that center on TIME and
MONEY:
OBJECTIVES:
 To find the Trend of the Sales and Debtors of the Company and to find a
relation
between the two.
 To find out the Average Collection Preriod of Various Customers, DGS&D
and Non
DGS&D.
 To analyze the Cash Conversion Cycle and the Liquidity of the Company.
 To analyse the Working Capital of the Comapany and how it can be
regulated.
 To find out the different Ratios related to Liquidity and Profitability
of the Company
and compare them with the competitors like HPCL and BPCL
 To know the Credit Policies of IOCL for different Customers.
 Analyse the efficiency of different Collection Procedures with special
emphasis on
the e-Collection Mode like RTGS and Core-to-Core banking.
3 3  DipanjanGuha,IMSGhaziabad
METHODOLOGY
The methodology followed in this project involved the following Phases:

 Collection of Data
 Type of the project
 Analysis of Data
 Conclusion & Recommendation
Collection of Data:
Data required for the project e.g. Balance Sheet, statement of Profit & Loss
Account etc. were
collected from the annual reports of IOCL, for the period of 2005-06 to 2009-10.
Besides for
Explanation of several issues, different articles, Internet data’s, books etc were
consulted. The
data collected are Secondary & Published Data. Few data have been collected from
the SAP
module used in IOCL
Type of the project:

The project is descriptive and analytical in nature.
Analysis:
For the comparative analysis ratio’s were used along with graphs, charts, and
necessary
diagrams. The current year i.e., 2009-10 has not been taken into calculation in
many ratios
because, at that time of preparation of this report the Annual Report 2009-10 was
not published.
Interpretation & Recommendation:

After completion of the entire analysis, interpretation & recommendation were made
on the basis
of figures and diagrams. Statistical tools like Tables, Charts, Bar graphs
Correlations are
used for representation of data.
3 4  INDIANOILCORPORATIONLIMITED(IOCL)
RECEIVABLE MANAGEMENT
INTRODUCTION: A sound managerial control requires proper liquid management
of
liquid assets and inventory. These assets are a part of working capital of
the business. An
efficient use of financial resources is necessary to avoid financial
distress. Receivables
result from credit sales. A concern is required to allow credit sales in
order to expand its
sales volume; it is not always possible to sell goods on cash basis.
Sometime other
concern in that line might established a practice of selling goods on credit
basis. Under
these circumstances it is not possible to avoid credit sales without
adversely affecting
sales. The increase in sales is also essential to increase profitability.
After a certain level
of sales this increase in sales will not proportionately increase production
costs. The
increase in sales will bring in more profits.
Receivables constitute a significant portion of current assets of a firm.
But for investment
in receivable a firm has to incur certain costs. Further there is a risk of
bad debts also. It
is therefore very necessary to proper control and management of receivables.
Cash is the most important component of current assets; therefore the firm
basic
strategies are to reduce the operating cash requirement. The company’s aim
is to
accelerate the collection of receivables so as to reduce the average
collection period. The
receivables represent an important component of current assets of a firm.
The purpose of
this analysis is the important dimension of efficient management of
receivables within the
framework of a firm objective of value maximization.
OBJECTIVES: The term receivables are defined as “debt owed to the firm by
customer
arising from sale of goods or services in the ordinary courses of business”.
Receivable
management is also called trade credit management. Thus account receivables
represent
an extension of credit to customers allowing them a reasonable period of
time in which to
pay for the good received.
The objective of receivable management is to promote sales and profit until
that point is
reached where return on investment in further funding receivables is less
than cost of
funds raised to finance that an additional credit, i.e. cost of capital. The
specific costs and
benefits which relevant to the determination of receivables management are
examined
below.
The major categories of cost associated with the extension of credit and
account
receivables are:
COLLECTION COST:
These are administrative cost incurred in collecting the receivables from
the customer to
whom credit sales have been made.
CAPITAL COST:
The increased level of accounts receivables is an investment in assets.
There is time lag
between the sale of goods to, and payment by the customer. Meanwhile the
firm has to
pay employees and suppliers of raw materials. Thereby implying that firm
should arrange
for additional funds to meets its own obligation while waiting for payments
from its
customers. The cost on the use of additional capital to support credit
sales, which
alternatively could be profitability employed elsewhere, is , therefore a
part of extending
credit or receivables or capital cost.
DELIQUENCY COST:
This cost arise out of the failure of the customers to meet their obligation
when payment
of credit sales become due after the expiry of credit period, the cost are
(i) blocking of
funds for extending period, (ii) cost associated with steps that have to be
initiated to
collect the overdue, such as reminders and other collection efforts, legal
charges etc.
DEFAULT COST:
The firm may not be able to recover the over dues because of the inability
of the
customers. Such debts are treated as bad debts these cost associated with
credit sales and
accounts receivables.
BENEFITS:
The benefits are increased sales and anticipated profits because of a more
liberal policy.
When firm extended trade credit, i.e. invest in receivables they intend to
increase sales.
The impact of liberal trade credit policy is likely to two forms. First, it
is oriented to sales
expansion, in other words, a firm may grant trade credit either to increase
sales to
existing customers or attract new customer. This motive for investment in
receivables is
growth oriented. Secondly, the firm may extend credit to project its current
sales against
emerging competition. Here the motive is sales retention. As a result of
increased sales,
the profit of firm will increase.
 What are Debtors?
Debtors are people or other firms who owe money to the firm. This will
usually happen
where the firm has sold goods with a period of credit. The firm sells the
good or service
but allows the purchaser a period of credit to pay - usually a month. During
this month
the purchaser owes the firm the money and is therefore a debtor.If the firm
has debts
these are considered an asset, because when the debtors pay the firm will
have converted
the debt into cash in the bank. Because most debts are relatively short-term
they are
considered current assets. The other current assets are stocks and cash.The
amount of
debtors a firm has depends on the line of business they are in. If most of
their business is
with trade customers where they have to offer credit then the level of
debtors may be
high. For many retail businesses, however, the level of debtors will tend to
be relatively
low as most of their sales are cash sales.
 Ways to manage debtors - credit policy and collection procedure

A sale is not a sale until the money is in your bank account. Having an
effective credit
policy and collection procedure in place is one of the most important facets
of owning
your own business. When it comes to dealing with customers who seem
unwilling to pay
on time it can mean the difference between prosperity and failure.
 Credit policy
Credit policy effects debtor management because it guides management about
how to
control debtors and how to make balance between liberal and strict credit.
If company
does not restrict to sell the products on credit after a given limit of
sale. This liberated
credit policy will increase the amount of sale and profitability. But risk
will also increase
with increasing of sale. If we sell the good to those debtors whose
capability to pay is not
good, then it is possible that some amount will become bad debts. Company
can increase
the time limit for paying by such debtors. On the other hand, if company’s
credit policy is
strict, then it will increase liquidity and security, but decrease the
profitability. So,
finance manager should make credit policy at optimum level where
profitability and
liquidity will be equal. We can show it graphically.
Fig. 6: Relation between Profitability and Liquidity
Mode of payment: Any type of payment is acceptable, but the costs involved
with such
things as credit card transactions as you may need to add a surcharge to
cover them must
be seen.
Dealing late payments: The policy should appear on the credit application
form, and
should clearly state the consequences of late payment. This may take the
form of
withholding goods, not processing orders, and in some cases, legal action.
Sub part of credit policy

(a) Length of Credit period : Length of credit period is also an element
that affects
decisions of finance manager relating to manage debtors. It is the time
which allows to
debtor to pay his debt for purchasing goods on credit from vendor. Finance
manager can
increase the length of credit period according to reputation of customers.
(b) Cash discount: Cash discount is technique to get money fastly from
debtors. It is
cost of investment in credit sale.
• Credit policy analysis

It means decision relating to analysis of credit policy. Evaluation and
analysis of credit
policy is based on following factors.
a) Collection of debtor’s information
For analysis the financial position of debtors, we have to collect the
information relating
to debtors. This information can be obtained from customer’s financial
statements of
previous years, bank reports, and information given by credit rating
agencies. These
information will be useful for deciding where debtors will our debt or not.
It will also be
useful for knowing capability to pay the debt.
b) Credit Decisions
After collection and analysis the debtor’s information, manager has to
decide whether
company should facilitate to sell goods on credit or not. If company sells
the goods on
credit to particular debtor, then at what level it will be sold after seeing
his position. For
this manager can fix the standard for providing goods on credit. If a
particular debtor is
below than given standard, then he should not accept his proposal of buying
goods on
credit.
• Formulation Collection Policy : For getting fund fastly

from debtor, the
following steps will be taken under formulation of collection
policy.
a) Send reminding letter for paying debt
b) Take the help of debt collection agency for getting bad debt.
c) To do legal action against bad debtors.
d) To request personally to debtor to pay his dues on mobile or email.
e) Finance manager should monitor collection position through average
collection period
from past sundry debtor and their turnover ratio.
f) To make ageing schedule. Sample of Ageing schedule is given below.
 Credit application
To help you to decide which of your customers should be granted credit
terms, it is
important to have a credit application form/agreement. This sets out all the
conditions of
credit, as well as the rights and obligations of both parties.
Essential components of a credit application:
• comprehensive details of all directors/partners/owners
• at least three trade credit references
• signature of the applicant to ensure that they have read and understood all
the conditions
and have agreed to abide by them. A Deed of Indemnity and Guarantee for
corporate
clients is optional, however it is an excellent safeguard against solvent
clients.
• the final decision should be based on all the data collected, in particular
the references,
the length of time that the business has been operating and whether or not
the guarantees
have been signed.
 Collection procedure
Step 1: A statement asking for payment should be sent. Some 'Reminder' or
'Final Notice'
adhesive labels can be bought.
Step 2: Telephone the customer and remind them of the debt. Ask them if
there is a
problem. If no barrier to payment exists, ask them to settle the debt by a
specific date.
Step 3 : If there is a cash flow problem, try to arrange a payment plan that
accommodates
both parties.
Step 4 : If the problem is recurrent then it is a good idea to review the
customer's credit
terms.
Step 5: If the debt is not settled within the agreed timeframe, you may
wish to take legal
action
To deal with situations as they occur so you don't contribute to any
potential cash flow
problems resulting from delinquent payments. If you design an effective
credit policy,
credit application and collection procedure, you are helping to ensure the
financial
security and stability of your business venture.
 CREDIT ANALYSIS:
Two basic steps are involved in the credit investigation Process.
A)OBTAINING CREDIT INFORMATION-The first step in credit analysis is
obtaining the information which form the basis for the evaluation of
customers.The
sources of information may be internal such as the historical payment
pattern of a
customers,or may be external such as :
I)FINANCIAL STATEMENTS-The published financial statements such as
balance sheet and profit and loss account.
II)BANK REFERENCES-The firm’s banker collects the necessary
information from the applicant’s Bank.
III)TRADE REFERENCES-Reputed Credit organization are approached
about
the credit worthiness of proposed customers.
IV)CREDIT BUREAU REPORTS-Credit Bureau reports from organization
which specializes in supplying credit information can also be
utilized.
B)ANALYSIS OF CREDIT INFORMATION-The information collected from

different sources are analyzed to determine the credit worthiness of the
applicant.The
analysis should cover two aspects:
I)QUANTITATIVE-The quantitative aspects is based on the factual
information
available from the financial statements,the past records of the
firm’s and so on.
II)QUALITATIVE-The qualitative judgement would cover aspects
relating to the
quality of management.
Customers Evaluation-The 5 C’s-
 CHARACTER- Reputation, Track Record

 CAPACITY- Ability to repay( earning capacity)
 CAPITAL- Financial Position of the company.
 COLLATERAL- The type and kind of assets pledged
 CONDITIONS- Economic conditions & competitive factors that may affect the
profitability of the customer.
Effective accounts receivable management can help you in a variety ways:

• It can cut and maintain your average collection delay or DSO
• It can lessen your direct and indirect expenses
• It can considerably reduce your bad debt
• It can tell you various ways to take advantage of your cash-flow
• It can help you capitalize on your internal resources
• It can maximize interventions on sales, service and market share
Fig 7: Debt Collection Procedure.
 Reasons for incurring Debts?

1.Debtors are the current assets for a company and provide the liquidity for a
company.So to
improve the liquidity position of a company it is important to incur debts.
However if the
debtors are too high in comparison with the other Current assets then there
will be a problem
of high working capital for the company which can hit the profitability badly.
2. Secondly, most of the sales are credit sales in every organization. Cash
sales constitutes
insignificant amount of the sales of a company. So to maintain the sales
revenue company
has to incur debts.
3 . It is important to reach the sales potential of a company in this growing
market. So if the company doesnot allow the credit to the customers then the
market will be
untouched.
4 . To Optimize the return on investments on the assets.
5. To get a competitive advantage over the competitors and to stay in the
competition it is
important to give the customers to credit period so the can utilize the extra
advantage.
 Confirmation of debt(How to establish correctness of debtors):

These are some points to establish the correctness of the Debtors.
• One must be sure to know who he is doing business with. Always obtain a
signed Credit
Application from new customers and check them out thoroughly.
• Only three trade references cannot always be relied upon. Some
organisations only pay
three customers on time just so that they can use them as references.
• Always a mercantile report must be obtained and checked for previous legal
actions and
directors that have been associated with previously failed businesses. If
one find either,
credit should not be extended. COD facility may be offered instead.
• A credit limit must be set. Whilst a credit limit should always be seen as
a guide, if a
customer is going to exceed that limit by a considerable margin (say 20%),
one must
always recheck their credit worthiness and reset the limit accordingly.
• Every Company should have a written policy that clearly sets out when, and
under what
circumstances, the organisation offers credit. This should be distributed
to all interested
parties (especially the sales force).
• Customers must not be given any excuse not to pay you on time. Make sure
all your
paperwork is easy to read and understand.
• Company should give their customers plenty of payment methods to use (i.e.
cheque,
EFT, bankcard, Mastercard, Visa, Diners and American Express).
• If claims and disputes are unavoidable, it must be made sure that he have
an effective
dispute resolution procedure that always results in effective corrective
action.
• Sales personnel should play an active role in ensuring that all invoices
are paid on time.
4 3  DipanjanGuha,IMSGhaziabad
• Terms and Conditions of Sale should include retention of title clause and
should be sent
to the customer with a new account welcome letter. This letter is an
opportunity to advise
the customer of their credit limit and your payment terms.
• Customers must be asked to sign personal guarantees, if he is unable to
justify the level
of credit that they require.
• Personal guarantees must not be used as a reason to open an account for a
customer with
a poor payment history. Stick to COD.
• Ring all new accounts before the first payment is due. Make sure that they
are happy with
the service / goods and confirm that payment will be made on the due date.
• Once customers are five days overdue with their payment, ring them and ask
for YOUR
money. Do not be shy or embarrassed. They aren’t.
• If Company have provided a good product or service and the customer still
will not pay,
the account should be closed and handover the debt over to a professional
collection
agency and never trade on a credit basis with these people again.
• Analyse the financial status of the company you are lending to by checking
their previous
financial accounts history or analysing the previous Legal Cases the
customer have
• Seek for the credit rating the company have. The higher arted comapanies
are
comparative risk free and credit can be extended in that cases.
 Non Recovery of debts

A company that extends credit to a customer faces the risk of not collecting
the account
receivable. If a loss does occur from extending credit, it is reported as an
operating expense,
such as bad debts expense.
There are two ways of reporting losses from credit sales. One is the direct
write-off method.
Under this approach, the company does not anticipate any loss. The asset
Accounts
Receivable is reported at its full amount and no expense is reported until it
is known with
certainty that a customer will not pay the amount owed. This method is not
encouraged by
accountants, because it may be overstating assets and net income.
4 4  INDIANOILCORPORATIONLIMITED(IOCL)
The preferred way to report losses from credit sales is to anticipate that some
receivables will not be collected. This approach is the allowance method. It
gets it name
because of the contra account to Accounts Receivable entitled Allowance for
Doubtful
Accounts. The credit balance in the allowance account works to value the
accounts
receivable at their approximate net realizable amount. Under the allowance
method, the bad
debts expense and the credit to the allowance account is reported closer to the
time of the
sale—thus providing a better matching with revenues. Under the allowance method
the
accounts receivable are reported at a more realistic and conservative amount.
To assist in the managing of accounts receivables, an aging of the accounts
receivable is
prepared. An aging sorts the customers' balances by how long the customers have
owed the
open invoice amounts.
 Ways to collect Bad Debts:

Recovering bad debts is not an easy or pleasant task, and it is advisable
for businesses to
take measures to avoid or at least minimize bad debt. This can be done by
having a credit
management system in place. Credit management strategies may include:
* clearly stating terms and conditions in the credit contract
* ensuring all credit transactions are documented and signed
* maintaining records accurately
* keeping track of due and overdue payments
* checking the credit rating of debtors before extending credit
* checking the credit rating of the debtor on a regular basis after giving
credit
* collecting a deposit from the customer before delivering goods or services
* collecting portions of the payment as a project progresses
* reminding customers of payments through phone, letters or visits
In spite of having an efficient credit management strategy, it is still
possible to incur bad
debts. All businesses will have some percentage of customers who delay payments
or even
avoid them. Businesses have many options to deal with delinquent customers.
Some of these
are discussed below.
Consultation
Businesses can try to recover bad debt from customers through consultation. The
consultation can bring about an agreement between the creditor and debtor
regarding the
payment. In case of any disputes over the debt, the Community Justice Center
can be called
upon to intervene and resolve the issue.
Demand letter
A demand letter can be sent to the company or individual in debt, if the
consultation does not
give satisfactory results. A demand letter must clearly state the details of
the debt, along with
the total amount of debt involved and the date by which the debt must be
settled. The demand
letter can also include a warning of legal action in case the debt is not paid
by the specified
date.
Statutory letter
The credit company may choose to send a statutory letter instead of a demand
letter. A
statutory letter will also give details of the debt, total amount of debt and
expected date of
debt settlement. Statutory letters are sent out like court documents and hold
greater clout than
demand letters. The statutory letter warns the debtors of legal action, within
21 days of the
specified date, if they fail to make the payment.
Litigation
A business may have to file a lawsuit against the debtor to recover the debt.
All other debt
recovery strategies, within legal boundaries, must be tried before reaching
this stage.
Litigation is always the last option. Taking legal action is a time-consuming
and costly
business. It is advisable to get some idea of the potential cost involved
before proceeding
with the litigation.
Bad debts are an unavoidable side effect of extending credit. Though there are
many avenues
to collect debts, they are by no means easy and can cost the business a good
amount of time
and money. Therefore, it is better to develop an effective credit management
strategy to
minimize bad debts. Also, consider a partnership with a good collection agency
that can take
over the task of collection if your in-house resources and expertise is
inadequate to resolve
the situation.
Fig.8: Flow chart showing Debt Recovery Process
 Varoius modes of Debt Collection(How to collect debts?)
Payment options include estimated annual fees paid in periodic instalments
(preferably by
debit authority); cheque; direct deposits; Electronic Fund Transfer(EFT) ;
BPay; Credit or
Debit Card (via phone or website); direct debit; or Professional Fee
Funding.Others include:
Online Credit Card Payment System
Electronic Cheque System
Electronic Cash System and
Smart Card based Electronic Payment System
Real time Gross Settlement (RTGS) System
NationalElectronic Fund Transfer (NEFT) System and
Electronic Clearing Service (ECS).
Electronic funds transfer or EFT refers to the computer-based systems used to

perform
financial transactions electronically.
The term is used for a number of different concepts:
• Cardholder-initiated transactions, where a cardholder makes use of a
payment card
• Direct deposit payroll payments for a business to its employees, possibly
via a payroll
services company
• Direct debit payments, sometimes called electronic checks, for which a
business debits
the consumer's bank accounts for payment for goods or services
• Electronic bill payment in online banking, which may be delivered by EFT or
paper
check
• Transactions involving stored value of electronic money, possibly in a
private currency
• Wire transfer via an international banking network (generally carries a
higher fee)
• Electronic Benefit Transfer
RBI Control:
Recognising the importance of ensuring the safety, security of the
paymentsystems, the
Reserve Bank of India (RBI) has put in place three modes ofelectronic payments
i.e. Real
time Gross Settlement (RTGS) System, NationalElectronic Fund Transfer (NEFT)
System
and Electronic Clearing Service (ECS).Payments by these modes have been
steadily growing
in the last few years. Aninternal Working Group set up by the Reserve Bank to
examine the
variousissues related to migration from paper-based systems
to electronic
systemsrecommended a phased approach of encouraging, monitoring and mandating
for this
migration. The Reserve Bank has been using the approach of encouragingand
monitoring
resulting in almost 4 0,000 bank branches spanning over 9773  centres being
covered by the
RTGS and NEFT systems. A study conducted by the Reserve Bank revealed that
during a
three month period about 2,100 cheques each valued at Rs.1 crore and above were
processed
in the clearing houses in the four metros. It is proposed that with effect from
April 1, 2008 all payment transactions of Rs. 1 crore and above between RBI
regulated
entities i.e. banks, primary dealers and NBFCs as well as in RBI regulated
markets i.e.
money market, Government Securities market and foreign exchange market may be
mandated to be undertaken through electronic mode only. This move will not only
reduce
risk from moving large paper-based value retail payments to safer electronic
modes, but will
also bring greater efficiency and customer convenience to the payment systems.
Recognising the importance of electronic payment systems in ensuring safe,
secure and fast
payment and settlements RBI has put in place three modes of payments:
Sl. No. PaymentSystems Features
1 RTGS (Real Time Gross For online real time settlement of

systemically
Settlement) important payments. Minimum
transaction value
Rs.1.00 lakh. Transaction window from
9.00 a.m.
to 4 .00 p.m. Amount is credited to
the beneficiary's
account within a maximum time of 2
hours.
2 NEFT (National Electronic For settlement in batch process – 6

settlements a
day on week days and 3  settlements on
Saturday.
Funds Transfer)
Customers accounts credited on the
same day for
first four settlements and by the
next day for the
last two settlements
3  ECS (Electronic Clearing Netted settlement for bulk

transactions of repetitive
nature (dividend, salary, pension
payments,refunds,
System)
vendor payments).
 Efficiency Of e-Collection:
By migrating away from the paper check, businesses have the ability to
increase
efficiency and realize numerous hard and soft benefits, both in their
bottom lines and to
their corporate citizenry.
• Cost Reduction
Cost reduction is among the key drivers for making the organizational
move to electronic
payments. Cost savings come from a variety of areas related to
electronic payments –
among the most readily quantifiable are reduced head count, lower
administration costs
and decreased paper usage. The reduced amount of paper consumption can
have a drastic
and far reaching effect. By making the switch from paper check printing
to electronic
payments, businesses can eliminate enormous amounts of check, forms and
approval
documents and envelopes. These savings also cascade into postage reduction.
• Stremlined Payment Processing

For organizations of all sizes, the move to electronic payment processing
can bring
additional challenges, however. Although cost savings can be found by
replacing paper
checks with electronic payments, many organizations are finding that in
order to execute
electronic payments they must log in to several proprietary vendor systems.
This can add
operational complexity to an already inefficient accounting process. A
simpler approach
is to consider working with a payment processor that can execute all payment
types on
your behalf. Some of these vendors, such as SunGard, can accept payment
files directly
from your accounting/ERP applications, and even provide least cost routing
of payments,
dramatically increasing payment processing efficiencies without requiring
process
change. The speed with which electronic payments can be received and
delivered can
have even further reaching effects on the bottom line when considering the
effort to attain
early payment discounts (generally the 2 percent 10 net 3 0 terms). the
average business
organization is unable to capture anywhere between 50 percent-60 percent of
discounts
offered, because their A/P departments are unable to process and pay the
invoice using a
paper check within the 10-day window that applies to the discount. According
to statistics
from PayStream Advisors, the average paper check approval and disbursement
cycle
can take between 3 0-4 0 days or more, placing the 10-day discount opportunity
well out
of reach. Aside from the standard discount practices among businesses,
electronic, faster
payments also means fewer late fees. If the average payment and approval
cycle is
around 3 0-4 0 days, with variances going even higher, then the likelihood of
incurring late
fees and other penalties must increase dramatically, again impacting the
bottom line.
• Improved Visibility to cash, taking advantage of Error

Detection and
Increased Fraud Detection
The most widely selected benefit of electronic payments is improved cash
forecasting,
selected by 4 1 percent of the organizations polled. Improved cash
forecasting is directly
related to the improved visibility to cash made possible by automating the
payment
process. 60 to 70 percent of all enterprises note a lack of visibility
across
many key aspects of the A/P process, making it increasingly difficult to
mitigate risk. In
the middle office, an electronic payments process also creates faster
cycling times and
payments processing assists the detection of fraud in a timelier manner.
Electronic
payments are subject to more immediate methods of payment verifications and
more
accurate matching without being exposed to as much chance for human error
• Going “green” and improving corporat e citizenry in addition to the

bottom
line
The green movement plays an important role in today’s business landscape.
Not only is
there the environmental impact many companies are reducing, but the positive
effect on
their corporate culture and the way they are viewed by other organizations
and consumers
can also have a beneficial effect on bottom lines. According to statistics
found on the
non-profit PayItGreen Alliance Web site, paper checks require more than 674 
million
gallons of fuel and produce over 3 ,628,200 tons of greenhouse gases over the
course of
their lifetime.
Fig. 9: Comparison of Conventional Method and Electronic Payment System
 Role of SAP in Receivable Management in IOCL
Indian Oil Corporation Ltd. (IOCL) is the 18th-largest petroleum company in
the world. As
the flagship national oil company in the downstream sector, IOCL delivers
petroleum
products to millions of consumers via 10 refineries, 3 4 ,000 sales points,
and a country-wide
network of 9,3 00 kilometers of pipeline. To integrate business processes
and establish a
standard communication platform, IOCL deployed SAP NetWeaver® Process
Integration
technology and the SAP NetWeaver technology platform.
Key Challenges Why SAP Was Selected
• Ensure accounting of correct quantities in • Support for open XML Java

standard
business transactions
• Integration with the
existing SAP® ERP
• Ensure on-time update of end-product rates application
• Prevent delays in signing of joint • Harmonized with all other

components
certificates (JCs) of the SAP
NetWeaver technology
platform
• Prevent mismatch between JC and system
• Integration tool for all
SAP solutions
quantities to prevent disputes in transactions
• Support for industry-
standard adapters
• Use correct valuation for transactions
such as RosettaNet and
chemical industry
data exchange (CIDX)
Implementation Best Practices Low Total Cost of Ownership
• Embraced open source software – the • Leveraged funding

for enterprise
Linux operating system – supported by SAP resource planning (ERP)
deployment for
this project too
• Completed implementation through
• Deployed more economical
option of
inhouse consultants using open source software
• Deployed open-standard-based hypertext • Reduced cost of business

transactions
transfer protocol (HTTP) over secure with other oil companies by
accelerating
sockets layer (SSL) for securing data the frequency of settlements
from monthly
communication between participating to daily
partners
• Completed deployment in 9
months, on
time and within budget
Financial and Strategic Benefits Operational Benefits
• Achieved transparency of intercompany • Promoted error-

free quantity
settlements and accelerated their processing reconciliation at the plant
level
frequency from monthly to daily
• Streamlined supply chain
performance
• Improved planning for
• Improved data accuracy by
99%
“exchange”transactions
• Minimized inventory levels
• Exercised better control over placement
and operating costs • Eliminated paper-based JC
exchange
process
• Replaced old system with

reconciled
data flow
• Reduced cost of exchanges by

as much
as 95%
Table 2: Salient Features of Implementation of SAP
 Impact of debtors in the Working Capital Management of
the
Company
Working capital, also known as "WC", is a financial metric which represents
operating
liquidity available to a business. Along with fixed assets such as plant and
equipment,
working capital is considered a part of operating capital. It is calculated as
current assets
minus current liabilities.
Investment in fixed assets only is not sufficient to run the business. Working
capital or
investment in current assets, howsoever small it is, is a must for purchase of
raw materials,
and for meeting the day-to-day expenditure on salaries, wages, rents,
advertising etc., and for
maintaining the fixed assets. “The fate of large scale investment in fixed
capital is often
determined by a relatively small amount of current assets.” Working capital is
just like a
heart of industry if it is weak, the business cannot prosper and survive,
although there is a
large body (investment) of fixed assets. Moreover, not only the existence of
working capital
is a must for the industry, but it must be adequate also. Adequacy of the
working capital is
the lifeblood and controlling nerve center of a business. Inadequate as well as
redundant
working capital is dangerous for the health of industry. It is said,
‘Inadequate working capital
is disastrous; whereas redundant working capital is a criminal waste’. Both
situations are not
warranted in a sound organization.
The advantages of working capital or adequate working capital may be enumerated
as below:
-
1. Cash Discount:
If a proper cash balance is maintained, the business can avail the
advantage of cash
discount by paying cash for the purchase of raw materials and merchandise.
It will result
in reducing the cost of production.
2. It creates a Feeling of Security and Confidence:
The proprietor or officials or management of a concern are quite carefree,
if they have
proper working capital arrangements because they need not worry for the
payment of
business expenditure or creditors. Adequate working capital creates a sense
of security,
confidence and loyalty, not only throughout the business itself, but also
among its
customers, creditors and business associates.
3 . ‘Must’ for Maintaining Solvency and Continuing Production:
In order to maintain the solvency of the business, it is but essential that
the sufficient
amount t of fund is available to make all the payments in time as and when
they are due.
Without ample working capital, production will suffer, particularly in the
era of cut throat
competition, and a business can never flourish in the absence of adequate
working
capital.
4 . Sound Goodwill and Debt Capacity:
It is common experience of all prudent businessmen that promptness of
payment in
business creates goodwill and increases the debt of the capacity of the
business. A firm
can raise funds from the market, purchase goods on credit and borrow short-
term funds
from bank, etc. If the investor and borrowers are confident that they will
get their due
interest and payment of principal in time.
5. Easy Loans from the Banks:
An adequate working capital i.e. excess of current assets over current
liabilities helps the
company to borrow unsecured loans from the bank because the excess provides
a good
security to the unsecured loans, Banks favor in granting seasonal loans, if
business has a
good credit standing and trade reputation.
6. Distribution of Dividend:
If company is short of working capital, it cannot distribute the good
dividend to its
shareholders inspite of sufficient profits. Profits are to be retained in
the business to make
up the deficiency of working capital. On the other contrary, if working
capital is
sufficient, ample dividend can be declared and distributed. It increases the
market value
of shares.
7. Exploitation of Good Opportunity:
In case of adequacy of capital in a concern, good opportunities can be
exploited e.g.,
company may make off-season purchases resulting in substantial savings or it
can fetch
big supply orders resulting in good profits.
8. Meeting Unseen Contingency:
Depression shoots the demand of working capital because sock piling of
finished goods
become necessary. Certain other unseen contingencies e.g., financial crisis
due to heavy
losses, business oscillations, etc. can easily be overcome, if company
maintains adequate
working capital.
9. High Morale:
The provision of adequate working capital improves the morale of the
executive because
they have an environment of certainty, security and confidence, which is a
great
psychological, factor in improving the overall efficiency of the business
and of the person
who is at the hell of fairs in the company.
10. Increased Production Efficiency:
A continuous supply of raw material, research programme, innovations and
technical
development and expansion programmes can successfully be carried out if
adequate
working capital is maintained in the business. It will increase the
production efficiency,
which will, in turn increases the efficiency and morale of the employees and
lower costs
and create image among the community.
BALANCE SHEET CAPITAL SUPPLIED
ASSETS LIABLITIES
-Current(Short- -Current
DEBT
Term) -Long Term
-Fixed (Long
Term)
-Others
Shareholder`s STOCK
EQUITY
CASH FLOW
SELL EQUITY
ISSUE DEBT
Retain profits or
<BUY ASSETS> <BUY
“repay” Debt
INVENTORY>
holders (with
Interest) and Stock

MAKE SALES
Holders (with
<PAY TAXES>
Dividends)
<PAY COSTS>
<PAY INTEREST>
<PAY DIVIDENDS>
Fig. 10: Working Capital Cycle and Sources of Cash
Debtors have the following effect on the working capital of a company:

1. Provides high liqidity position for the company
2. The business depends more on the external sources for financing the day-to-
day activity
because payment by the debtors depends on their will. Though the company
have the
definite credit terms laid down for the debtors but it depends on them and
the efficiency
of the collection procedure for the rules to get implemented.
3 . If debtor Collection period is moderate or low then it increses the working
capital
4 . Viceverse, If debtor Collection period is high then decreases the working
capital
5. If bad debts are frequently occuring then there is a loss for the company
which decreases
the working capital of the company
6. Provide better investment opportunities in short term basis which can earn
get some
profit for the comapany
7. High Return on Investment
 Different Ratios related to Debtor Management and Profitability
Liquidity Ratios
‘ Liquidity’ means ability of a firm to meet its current obligations. The
liquidity ratios,
therefore, try to establish a relationship between current liabilities, which
are the obligations
soon becoming due and current assets, which presumably provide the source from
which
theseobligations will be met. The failure of a company to meet its obligations
due to lack of
adequate liquidity will result in bad credit ratings, loss of creditors
confidence or even in law
suits against the company. The following ratio are commonly used to indicate
the liquidity of
business:
i) Current Ratio- This ratio is most commonly used to perform the shortterm
financial
analysis. Also known as the working capital ratio, this ratio matches the
current assets of the
firm to its current liabilities.
Current ratio = Current Assets /Current liabilities
ii) Acid Test Ratio/ Quick Ratio- One defect of of Current Ratio is that it
fails to convey
any information of the composition of the current assets of the firm . A
rupee of Cash is
considered as equivalent to a rupee of Inventory which is not the same as the
cash is more
readily available to the Business. So it is called the Quick Ratio which
measures the firm`s
ability to convert current assets quickly into cash. The Acid Test Ratio is the
ratio between
Quick Current Assets and Current Liabilities.
Acid Test Ratio = Quick Assets / Current Liabilities
iii) Cash Ratio- It is a measure of the absolute liquidity of the firm where
only
cash and bank balances in hand is considered. It is the indicators which shows
how
immediately a firm can meet its liability obligations. It the Ratio between the
Cash and Bank
Balances and Current Liabilities.
Cash Ratio = Cash and Bank Balances / Current Liabilities
Turnover Ratios
Turnover ratios are used to indicate the efficiency with which assets and
resources of the firm
are being utilized. These ratios are known as turnover ratios because they
indicate the speed
with which assets are being converted or turned into sales. These ratios, thus,
express the
relationship between sales and various assets. A higher turnover ratio
generally indicates
better use of capital resources which in turn as a favorable effect on the
profitability of the
firm.
i) Debtors Turnover Ratio – This ratio indicates the relationship between net
credit sales
and trade debtors. It shows the rate which cash is generated by the turnover of
debtors. It is
computed as follows:
Debtors Turnover Ratio = Credit sales /Average debtors
Where, Average debtors = Opening debtors + Closing debtors
2
Average Collection Period – The debtors turnover ratio is usually supplemented
by average
collection period. The debtors turnover ratio together with average collection
period involves
the following steps:
a) Calculation of daily sales – This is computed as follows:
Sales per day = Net sales/No. of working days in a
year
b) Calculation of average collection period – This is calculated as follows:
Average collection period = Days in the year / Debtors turnover
ratio
 CASH CONVERSION CYCLE:
In management accounting, the Cash Conversion Cycle (CCC) measures how
long a
firm will be deprived of cash if it increases its investment in resources
in order to expand
customer sales. It is thus a measure of the liquidity risk entailed by
growth. However,
shortening the CCC creates its own risks: while a firm could even achieve
a negative
CCC by collecting from customers before paying suppliers, a policy of
strict collections
and lax payments is not always sustainable.
CCC = Days between disbursing cash and collecting cash in connection with
undertaking a
discrete unit of operations.
Inventory conversion + Receivables conversion –

Payables conversion
=
period period
period
Avg. Accounts
Avg. Accounts
Avg. Inventory
Receivable
Payable
+ –
=
COGS / 3 65
Revenue / 3 65
COGS / 3 65
Fig. 11: Operating Cycle
Cashflows insufficient. The term "cash conversion cycle" refers to the
timespan between a firm's disbursing and collecting cash. However, the CCC
cannot be
directly observed in cashflows, because these are also influenced by
investment and
financing activities; it must be derived from Statement of Financial
Position data
associated with the firm's operations.
Equation describes retailer. Although the term "cash conversion cycle"
technically
applies to a firm in any industry, the equation is generically formulated to
apply
specifically to a retailer. Since a retailer's operations consist in buying
and selling
inventory, the equation models the time between
(1) disbursing cash to satisfy the accounts payable created by sale of a
unit of inventory,
and
(2) collecting cash to satisfy the accounts receivable generated by that
sale.
Equation describes a firm that buys & sells on account. Also, the equation
is written
to accommodate a firm that buys and sells on account. For a cash-only firm,
the equation
would only need data from sales operations (e.g. changes in inventory),
because
disbursing cash would be directly measurable as purchase of inventory, and
collecting
cash would be directly measurable as sale of inventory. However, no such 1:1
correspondence exists for a firm that buys and sells on account: Increases
and decreases
in inventory do not occasion cashflows but accounting vehicles (receivables
and
payables, respectively); increases and decreases in cash will remove these
accounting
vehicles (receivables and payables, respectively) from the books. Thus, the
CCC must be
calculated by tracing a change in cash through its effect upon receivables,
inventory,
payables, and finally back to cash—thus, the term cash conversion cycle, and
the
observation that these four accounts "articulate" with one another.
five important intervals, referred to as conversion cycles (or conversion
periods):
• the Cash Conversion Cycle emerges as interval between disbursing
cash→collecting
cash
• the payables conversion period (or "Days payables outstanding")
emerges as
interval of owing cash→disbursing cash
• the operating cycle emerges as interval due to owing cash→collecting
cash
• the inventory conversion period or "Days inventory outstanding" emerges
as
interval between owing cash→being owed cash
• the receivables conversion period (or "Days sales outstanding") emerges
as interval
between being owed cash→collecting cash
Credit Policies of IOCL:

A firms objective with respect to receivabes management is not merely to collect
the receivables
quickly but attention should also be given to the benefit cost trade-off involved
in the various
areas of accounts receivables management. IOCL has the same objective like other
firms. There-
fore the first decision area is credit policies.The credit policy of a firm
provides the framework to
determine :
a) Whether or not to extend credit to a customer considering market demand and
how much
credit to be extended
b) Peroid of credit
c) Whether not to change interest rate and if so at what rate
d) Analyse the acceptable mode of security
e) Firms credit evaluation
f) What would be the net margin after credit outgo
g) Consider the performance of the party in past 5 years or so
h) Bank`s evaluating data of party`s performance
Therefore the credit policy decision of firm has two broad diamensions :
1. Credit Standard & 2.Credit Analysis
DGS&D Sector:
Most of the customers in IOCL`s DGS&D Sector are government Companies and they make
payment on boll basis, means when bills are submitted the bills are paid within 2-3 
days. These
credit poplicies are determined by the Central Goverment itself at the time of
determining
Budget. These credit terms are also determined by them on individual customer
requirement
basis. Therefore these customers cannot be treated as credit customers. But it is
true that IOCL
has given credit to them but all are determined and controlled by the government.
Payment Procedure:
Generally all the Para- Military forces give their requirement to MCO New Delhi.
Then MCO
Places the order to IOCL in favour of these customers.After supplying the required
materials,
IOCL sent the bill to MCO office and MCO has paid the billing amount to IOCL.
Government of
India constructs this MCO Office.
Other customers like Indian Railways, Army, Border Roadways, and Air Forces have
their own
supplying and paying authority.
Credit Ananlysis:
Besides established credit standards , a firm has developed procedure for
evaluating credit
applications. The second aspect of credit policies is credit analysis and
investigation. Two Basic
steps are involved in this process:
a) Obtaining credit information
b) Analysis of credit information
After analysing the information, the decision is taken for granting credit to
customers. IOCL has
been obtaining this information from various sources like Internal & External.
Internal Sources: Various Forms, Documents, Trade Reference and the contacts of
firm`s to
judge the suitability of the customer`s for credit.
External Sources: Financial Statements, Bnaks Reference, Trade Refernce and Credit
Bureau
Reports. Generally IOCL take bank gurranty and all required documents for credit
supply to their
Non DGS&D customers. But in case of DGS&D customers Govt. takes responsibility.
CREDIT TERMS:
Credit terms have components Credit Period, Cash Discount, Interest, Security,
Volume of Sales.
For IOCL the customer especially the DGS&D customers are Govt. customers and they
paid
their dues immediately after submitting the bill. This whole procedure takes hardly
takes 4  to 8
days. Cash discount is generally given to Railways and to DGBR units @ Rs. 150/Kl.
CASH DISCOUNT:
The cash discount has implecations for the sales volume, avarage collection period,
average in
investments receivables and profit per unit. The chages in discount rate would have
both positive
and negative effects. The implications are:
• The sales volume will increase. Due to the reduced price factor the debtors
will try to
purcahse more to get the maximum benefit and the debtors decreases
drastically
• Since the customers would likely to pay within the discount period, the
average collection
period would be reduced. The reduction in the collection period would lead
to reduction
in the investment in the receivables as also the cost.
• The discount would have negative effects on the profits. This is because
the decrease in
price would effect the profit margin per unit of sales. IOCL has always
given a good
discount rate. In this fluctuating oil market it is quite hard to maintain
a good discount
rate but IOCL has efficinctly maintained that. When the crude oil price was
14 2$ per
barrel, the discount rate was Rs.150/Kl. A well maintained customer
beneficial process is
the key mantra of IOCL`s success.
Due to all these policies two aspects are covered:
• Degree of effort to collect the overdues: A very rigorous collection
strategy would
involve increased collection costs as a result the average collection
period will be reduced
and profit will be decreased for that reason IOCL has a very strict
Collection Policy
• Type of collection effort: The second aspect of collection policy relates
to the steps taht
should be taken to collect overdues from the customers. A well-established
collection
policy should have clearcut guidlines as to the sequency of collection
efforts. IOCL`s
collect effort is in the beginning is very polite and moderate, but, with
the passage of
time, it gradually become strict. The steps which are usually taken by IOCL
are
a) Letters, including reminders, to expedite payment
b) Telephonic calls for personal contact
c) Personal visits
d) Help from collection Agencies like MCO
e) Legal Action
Checklist for Concurring the Credit Proposal:
 Whether proposed credit is as per latest approved Credit Policy of the
Corporation in
terms of:
• Period of Credit
• Credit Cap for the individual customers and Supply location
• Credit Cap for the State Office/ Region.
• Approving Authority
 Whether the Party is already enjoying the Credit Fecility with IOC and if so,
whether
there is any beyond credit Outstanding
 Reasons for beyond credit Outstanding and Action Plan for collecting the
same.
 Past payment track record of the customer with specific instance of default.
if any, with
reasons for extending credit inspite of above
 The nature of business envisaged ie. Whether additional volume/ Customer
pertaining to
OMCs/ retentions of existing business etc.
 Whether the credit is secured and if so what is the security
 Assesment of Creditworthiness of the Customer through CRISIL module in line
with
existing guideline duely signed
 Whether the credit is interest bearing and if not the reason for the same
 Whether the Retained margin as per unit basis after reckoning the cost of
credit at IOC`s
current borrowing rate and all the other costs for positioning the product
at the intended
supply locations and any other incentives like discount, free delivery etc.
but before
reckoning the marketing cost is positive.
 Whether it is a one time credit or for a specific period.
 If existing customer the sale of product upto the date of the proposal for
the Current
Financial Year and the Volume of Sale of the Customer during the
cirresponding period
of the previous year to access incremental volume/ incremental earnings of
retained
margins
 Whether the customer enjoys similar fecilities from other Sate Offices/
Region if product
is uplifted from there.
Checklist for Concurring Discount Proposals:
 Whether the proposed Credit is as per lastest approved Credit Policy for the
Corporation
in terms of:
• Ceiling of discount of individual products
• Approving Authority
 Whether the Party is already enjoying the Discount Facility with IOC and if
so, whether
any enhancement sought in this within the policy and reason for the same.
 If exixting customer to whom discount is sought to be enhanced or to be
extended for
further period , the sale of products upto the date of proposal for the
current financial year
and the volume of sale of the customer during the corresponding period of
the previous
year to access the incremental volume/ earnings of retained of retained
margin
 The sale of the customer upto the date of proposal of existing financial year
and the
projected volume arising out of the discount proposal for the balance period
of the
exixting financial year.
 The nature of the business envisaged i.e. additional volume / customer
pertaining to
OMC`s etc.
 Proof of similar facility by customer with OMC`s if any.
 Whether the retained margin as per unit basis after reckoning the discount
and other costs
for positioning the product at the intended supply location and any other
incentive like
Interest free Credit, free delivery etc. but before reckoning the marketing
cost is positive.
 Whether there is a growth in the profitability of the margin level for the
existing year as
compared to the previous year for the particular product.
 Whether the customer enjoys similar fecilities from other Sate Offices/
Region if product
is uplifted from there.
 Whether it is a one time basis or for a specific period.
 Whether the proposal is only for the purpose of quoting in a tender.
Launching of RTGS mode of collections in IOCL:
IOCL announced that RTGS mode of collection of fund is was launched after
successful trails.
Under this system, the funds can be transferred by our customers from any of their
bank to
IOCL`s bank (SBI) on “Real Time“and on “Gross” basis.
Major features of this system as follows:
1.This network is provided by RBI across the country among all the banks.
2.The RTGS service window for customer’s transactions are available from
9.00 hours to
15.3 0 hours during week days (Monday to Friday) and 9.00 hours to 11.3 0
hours on
Saturdays.
3 .While remitting the amount, IOCL customers have to give following details
to his
bank:
a. Amount to be remitted
b. Their own A/c. No. With the bank which is to be debited
c. Name of the beneficiary bank (i.e. SBI in our case)
d.Name of the beneficiary customer (i.e. IOC)
e.A/c. No. Of IOC with SBI (18 digit)
f.The IFSC (Indian Financial System Code) of receiving branch
In the proposed system, every payment will be accompanied by an 18 digit
code
(which is mandatory) to enable data downloading into SAP and uploading
into the
individual customers a/cs in their Specific Credit Control Areas (CCAs).
1. As a precaution, an enrolment form is designed which is to be filled up
before allowing
any of our customers using RTGS mode of payment. This format should be
signed by
state finance & by the field officer under seal and stamp and
acknowledgement of
customer along with customer contact detail should be obtain on the form.
One copy of
sign format be sent to HO banking as scanned copy for control purpose.
2. The data of RTGS collection received in SBI A/c will be downloaded
centrally by HO
banking at frequent intervals and uploaded into the Customers A/cs through
SAP.
Other important points / features to be noted are given below:
1.Besides the details to be given as mentioned in points ’a-f’ above, every
payment must
bear an 18 digit code as a mandatory requirement to enable downloading the
payment
data into SAP and uploading into the Customers A/cs.
2.The 18 digit customer is unique for every customer and foe every Credit
Control Area.
The logic and structure of this 18 digit code is explained below:
First 11 digits reflects IOC’s RTGS A/c No. With SBI.
12th is an alphabet field where each alphabet relates to Specific Credit
Control Area in
our SAP.
Last 6 digits indicate SAP Customer Code of the party remitting the
payment.
With the above structure, every payment is taken not only to the customer code
but also
taken up to specific credit control area.
1.A table showing the mapping of each alpha to specific CCA is given in
Annexure-B.
Alphabets like ‘B’ ‘I’ ‘O’ are deliberately ignored to avoid confusion in
mistaking as
numeric which may be noted.
2.All RTGS payments will be posted in “Owning state of Customer”. In all
such cases
where customers are taking supplies from other states, the above feature
must be borne in
mind the supplying location and supplies should be effected against
available overall
credit balance in the account irrespective of the company code. Owning state
of the
customer should take full responsibility in monitoring the a/c and ensuring
credit limits or
payment against supplies.
3 .Every payment through RTGS is identified with a Unique Transaction Number
(UTR)
which will be captured while posting collections in SAP and the same will be
reflecting
in the PAD also.
4 .From the time the customer remits the payment to the tome his a/c in IOC
receives the
credit, the process takes about 2/3  hrs. which may be appraised to the
customer while
enrolling.
5.The posted RTGS transaction can be viewed in SAP vide t-code: FBL5N in GL
Code
6010100061 in Co Code 0100
Precautions –
1. Customer should strictly adhere to filling up 18 digit code for each
payment which
only enables proper accounting of the payment.
2.Any payment transfer not complying the 18 digit structure will get
rejected and result in
infructuous interactions between banks, IOC, State Offices and customers
which should
be totally avoided.
3 .SV/TV remittances by LPG distributors are not permitted under RTGS system
since the
SAP code for SV/TV customers is 7 digit and the 18 digit code structure will
accommodate only 6 digit SAP code.
4 .Security Deposit / EMD / any other payments by vendors are not permitted
under
RTGS system covered by subject circular.
5.NEFT payments by customers is not permitted. Only RTGS collections shall
be
allowed from customers.
6.SOs/Field locations should closely monitor the successful operation of the
system and
ensure smooth functioning of the process.
Benefits-
1.Enormous manual work of handling instruments, preparation of cash
receipts,
DCRs etc. gets eliminated.
2.RTGS payments by customers will enable savings in float of funds to
IOCL since in
cash of DD/Pay Order/Cheque funds are credited in IOCL account after 2-
3 days.
3 .Administrative convenience to customers since they are required to
advice their
own banker to transfer funds to IOCL account without any further
botheration of
ensuring that instrument reaches the supply location.
4 .RTGS charges levied by various banks are very nominal or nil in
comparison to
DD/ Pay Order making charges.
5.RTGS collections received in IOCL bank account at SBI CAG Mumbai will
be
accounted for in sap centrally from HO banking thru file upload option
thereby
reducing work at various supply locations as no cash receipts & DCR will
be
generated and further bank reconciliation entries will drastically
reduce.
ANALYSIS
DEBTOR TURNOVER RATIO ANALYSIS:
Rs.(in Crores)
Particulars 2005-06 2006-07 2007-08
2008-09 2009-10
Sales of Products & Crude 183 ,172.91 220,779.52 24 9,782.3 4 
287,759.72 271,073 .62
Sundry Debtors 6,698.03  6,73 6.06 6,819.23 

5,93 7.86 5,799.28
Sundry Debtors As a % Of Sales 3 .66 3 .05 2.73 

2.06 2.14 
Particulars 2005-06 2006-07 2007-08

2008-09 2009-10
Debtor Turnover Ratio 27.3 5 3 2.78 3 6.63 

4 8.4 6 4 6.74 
Average Collection Period(Days) 13 .3 5 11.14  9.96

7.53  7.81
Table 3 : DTR and ACP of IOCL from 2005-06 to 2009-10
 From the table it is seen that Debtors turnover ratio of IOCL shows an
increasing trend
with the exception of the year 2009-10 and it indicates that the debts are
being collected
more quickly. The changes of the ratio shows that the efficiency in the
company’s credit
policy or better performance in its ability to collect from its debtors. For
the Year 2009-
10 the sales has decreased for the company by 5.79%. Though the Debtors has
also
decreased but not that the same ratio, so the ratio has jumped up. The
reasons cannot be
sited due to non availability of sufficient data.
 From the table it is seen that the Debtors Collection Period of IOCL is
decreasing year by
year except 2009-10 which is a positive trend and it indicates efficient
debtor
management of IOCL. Effective debtor management is minimizing the collection
period
and also the bad debts incurred by the company. In 2009-10 the ACP has
slightly
increased thsn the previous year
 Moreover as we can see from Table 3  the Sales of IOCL is increasing year by
year but
the the Sundry Debtors are more or less constant and it has actually
decreased in the year
2008-09 by 12.9% when the Sales had increased by 15.2%. This shows the
efficiency of
collection procedure and the credit policies of the company.
Schedule for Debtors:
Rs.(in
Crores)
Sundry Debtors 2005-06 2006-07 2007-08
2008-09
Over Six Months
From Subsidiary Companies
Unsecured, Considered Good 24 .28 197.3 9 162.19
28.69
From Others
Secured, Considered Good 0.00 0.00 0.00
8.18
Unsecured, Considered Good 62.4 4  28.13  4 3 .70
53 .77
Unsecured, Considered Doubtful 255.04  24 7.24  54 0.3 0
53 7.98
Subtotal 3 4 1.76 4 72.76 74 6.19
628.62
Other Debts
From Subsidiary Companies
Unsecured, Considered Good 2,14 5.4 0 1,790.77 1,950.22
1,553 .15
From Others
Secured, Considered Good 0.00 0.00 13 8.3 1
13 9.93 
Unsecured, Considered Good 4 ,4 65.91 4 ,719.77 4 ,526.12
4 ,154 .14 
Unsecured, Considered Doubtful 0.70 2.4 7 3 .07
3 .4 4 
TOTAL 6,953 .77 6,985.77 7,3 63 .91
6,4 79.28
Less: Provision for Doubtful Debts 255.74  24 9.71 54 3 .3 7
54 1.4 2
Consolidated Total 6,698.03  6,73 6.06 6,819.23 
5,93 7.86
Table 4 : Schedule for Sundry Debtors from 2005-06 to 2008-09
ANALYSIS:
Fig.12: Classification of Debts considered Unsecured & Good and Unsecured &
Doubtful
Fig. 13 : Classification of Debts from Subsidiary Companies and Other Companies
 Table 4  shows the Breakup of the Total Sundry Debtors under different heads
like Over
Six Months and Other Debts.
 Among the debts over 6 months 71.23 % has been proposed to be doubtful on an
average.
And the whole of it from Other Companies. The Debts over 6 months for
subsidiary
companies has been considered as good.
 Among the Other Debts, the debts considered Good and Unsecured by other
companies
contribute a significant part like 69.85% on an average
 From the Fig.12 it can be seen that even though the Debts considered good and
Unsecured has decreased in 2008-09 but the debts considered doubtful has
been
increasing over the years and this whole part is contributed by the Other
Companies.
 From the Fig.13  it can bee seen that the Debts from Subsidiary Companies has
fluctuated
over the years but in case of Other Companies the debts has increased round
the years
expect in the year 2008-09 when there was fall of 6.74 %.
 So in Conslusion, IOCL should focus more on the Older debts and the debts
from other
companies to reduce the Bad Debts which has incresed over the years. Though
the debts
from other companies is incresing year-wise it is not an alarming situation
because the
Sales as-well-as Customers has also increased over the years.
LIQUIDITY RATIO ANALYSIS:
R
RAATTIIO
O 22000055--0066 22000066--0077 22000077--0088
22000088--0099 22000099--1100
CURRENT RATIO 1.4 2 : 1 1.3 1 : 1 1.5 : 1

1.25 : 1 1.3 2:1
QUICK RATIO 0.4 8 : 1 0.4 8 : 1 0.6 : 1

0.55 : 1 0.51:1
CASH RATIO 0.02 : 1 0.03 1 : 1 0.023  : 1

0.022 : 1 0.029:1
Table 5: Liquidity Ratios of IOCL
Fig. 14  : Line Graph showing the different Liquidity Ratios of IOCL
 From the above Table 5 it can be seen that the current ratio is getting
decreased in the
year 2006-07 and in 2008-09, whereas it is considerably high in the year
2007-08.
 The Quick Ratio is keeping constant in 2005-06 & 2006-07 but in 2007-08 it
is climbing
up and then it is getting decreased in 2008-09
 The Cash Ratio is remaining almost constant except in 2006-07 when it is
getting
increased slightly.
 In the case of 2006-07 the decrease in current ratio is mainly due to the
the following:
• The current liabilities and provisions has increased at a higher
rate than the
current assets. Thus there has been an decrease in the working
capital of the
company and the liquidity had decreased.
 In the case of 2007-08 the current ratio had increased drastically to 1.5
along with the
quick ratio while the Cash Ratio decreased.
• The main reason behind this is the soring rise the fuel prices
and the recessionary
period which had hit the world.
• There has been a steep rise in the inventory level along with the
loans and advances but along with this the current liabilities also
increased. The
cash demand was met due to this.
• But this effect was not shown in the Cash & Bank balance as it
maintained a
steady Cash Ratio.
• The rise in the inventory level was mainly due to the fall in the
demand of the
petroleum products due to rise in the prise which is according to
the “Laws of
Demand” saying that as the Price increases the demand decreases.
• But the company`s management must be given the credit to maintain
such good
Financial condition amidst the odd which every industry faced during
this period
as the ratio is within the threshhold limit of 2:1. Moreover the
company took
strict control on the Debtor position and never allowed the Debtors
to rise up
abruptly thus minimising the bad debts.
 In 2008-09 as the situation normalised, the Current Ratio decreased to 1.25:1
and the
Quick Ratio decreased as well. The main reason behind this are the
following:
• There has been a steep fall in the Inventory Level as the excess
stock was
liquidated.
• More strict control was implemented on the Loans & Advances.
• The debtors came down even further to Rs. 593 7.86 Crores.
 In 2009-10, the Inventory has increased by 4 4 .75% , which has resulted in the
increase of
the Current Ratio, when actually the Quick Ratio has decreased to 0.51:1.
But the Cash
Ratio has increased also which shows the Absolute Liquidity has increased
for the
Comapany.
CONCLUSION:
All the Liquidity Ratio are well within the alarming limits of the Industry. But
the Current Ratio
is highly fluctuating for the Company whereas the Acid Test Ratio is more or less
stable. This
shows that the fluctuation is due to the Inventory level. So company should try to
maintain an
even inventory level by following a proper Inventory Control Technique/Model like
EOQ Model
or ABC Model.
Working Capital Analysis Of IOCL
Rs.(In Crores)
Particulars 2005-06 2006-07 2007-08
2008-09 2009-10
Current Assets, Loans &
Advances
a) Inventory 24 277.79 24 702.69 3 094 1.4 8
2514 9.60 3 64 04 .08
b)Sundry Debtors 6699.4 8 673 6.06 6819.23 
593 7.86 5799.28
c)Cash & Bank Balance 74 4 .17 925.97 824 .4 3 
798.02 13 15.11
d)Other Current Assets 3 1.55 775.3 5 790.14 
1051.58 114 1.50
e)Loans & Advances 4 73 0.10 5917.11 13 556.02
11598.13  14 728.83 
Total Current Assets(A) 3 64 83 .09 3 9057.18 5293 1.3 
4 4 53 5.19 593 88.8
Current Liabilities &

Provisions
a)Current Liabilities 23 697.85 26576.76 3 3 4 07.99
3 2754 .58 3 4 4 80.17
b)Provisions 1978.51 3 129.11 1172.99
2603 .4 6 10271.56
Total Current Liabilities(B) 25676.3 6 29705.87 3 4 580.98
3 53 58.04  4 4 751.73 
Net Working Capital 10806.73  93 51.3 1 183 50.3 2 9177.15

14 63 7.07
Table 6 : Working Capital including Current Assets and Current Liabilities of IOCL
Fig. 15 : Bar Graph showing Working Capital including Current Assets and
Current Liabilities of
IOCL
The Working Capital Requirement of IOCL as in most Public Sector Enterprises,
are met through cash credit and advances arranged mainly with the State Bank of
India and other
Nationalized Banks.The excess over the margin money if required is usually covered
by a
gurantee from the Central Government. Whenever the total requirements of working
capital
cannot be met by Cash-Credit arrangements by SBI, IOCL can approach the Government
for
term loans. On Such a request the Government ususally examines the validity of the
request vis-
a-vis the internal resources of the undertaking and makes the decision to grant the
term loans.
This process of taking term loans is undertaken at the Head Office Level.
Year 05-06 to 06-07 06-07 to 07-08 07-08 to 08-09

08-09 to 09-10
Total Current Assets 7.05% 3 5.6% -16.93 %

3 3 .3 5%
Total Current Liabilities 15.69% 16.4 1% 2.24 %

26.56%
Working Capital -13 .4 6% 96.23 % -4 9.98%

59.4 9%
Table 7: Change of CA, CL and WC of IOCL from the previous years
From the above Tables and Figs. the following interpretation can be done:
 The Company tries to maintain a stable working capital around Rs.10,000

Crores but has
failed to do so in the years 2007-08 and 2009-10. This is mainly because
the company
could not maintain a stable Inventory Level in those years. As the
inventory constitute
about 65% of IOCL`s Current Assets a strict regulation over it can
largely affect the
Working Capital of the Company.
 As Petroleum is an essential commodity it has an even demand in the market.

So as there
is no huge fluctuations in the demand it helps in predicting the sales.
But the main cause
of concern for the company is the availability of the fuel at
international markets and the
rise in the International Fuel Prices over the years. As the major part
of the requirement is
imported from South East Asian countries, the Ecomonic and Political
scenario of these
countries also imporment from IOCL`s business point of view.
 From Table 7 we can see that 2007-08 has been an year of huge turmoil when
there was
a 3 6.6% increase of Current Assets which occured mainly due to increase in
the
Inventory Level and Loans and Advances. The Loans and Advances increased as
Govenment issued Oil Bonds for IOCL in that year to Compensate the huge
losses which
the company suffered during this year due to rise in the Crude Prices. Due
to in increase
in the Fuel Prices there was a problem in the cash flow of the company. So
to finance the
short term obligations the company had to go for the Short-Term Loans. Hence
the
Current Liabilities had increased. The Net result was a 96.23 % surge in the
Working
Capital.
 In 2008-09, the situation came back to normal when the Current Assets droped
by
16.93 % and Working Capital Decreased by 4 9.98%. This was mainly due to a
strict
credit policy which brought down the Debtors and lowering of the inventory
due to high
demand of fuels.
Breakup Of the Current Assets and Current Liabilities Under different Heads
like Cash & Bank, Debtors, Loans & Advances, Inventory & current
liabilities , Provisions(in CroresRs.):
Fig.16: Area Graph showing Breakup of Current Assets
Fig. 17: Area Graph showing Breakup of Current Liabilities
 From Fig. 16: it can be seen that :

• Cash and Other Current Assets has increased at a constant rate and
Sundry
Debtors has decreased at a constant rate when the Sales of the
Company has
increased over the Years.
• The controlling factor of Working Capital has been the Inventory
which has
fluctuated over the Years along with the Loans & Advances which was
geared up
from the year 2007-08 by receiving the Oil Bonds.
 From Fig.17 : it can be seen that:
• The provisions has drastically increased by about 294 % in the year
2009-10.
• The current liabilities had incresed in the year 2007-08 but after
that IOCL has
maintained a stable current liability level which is good because it
finances the
daily cash requirement of the Company.
CASH AND BANK BALANCES of IOCL( Rs.In Crores)
Cash & Bank balances Years

Particulars 2005-06 2006-07 2007-08 2008-09
1. Cash Balances:
a. Cash balances including
imprest 2.7 3 .75 2.4 8 85.3 7
b. Cheques in hand 698.83  726.4 3  74 6.96 712.65
Total (1) 701.53  73 0.18 74 9.4 4  798.02
2. Bank Balances:
a) Current account 27.85 185.02 64 .57 123 .98
b) Fixed Deposit account 14 .63  9.73  9.3 8 10.14 

c) Blocked account 0.16 0.16 0.16 0.16
Total (2) 4 2.64  194 .91 74 .11 13 4 .28
3 . Bank balances with Non
Scheduled Banks:
a) Current Account 0 0.88 0.88 0.88
Myanmar Economic Bank
Branch (5), Rangoon
[ Maximum balance during
the year- 0.88 crore]
TOTAL(1+2) 74 4 .17 925.97 824 .4 3  798.02
Table8: Cash & Bank Balances of IOCL
Fig.18 :Bar Graph showing the Cash and Bank Balance Trend of IOCL
ANALYSIS:
From the Table it can be seen that almost 92% of the Cash & Bank Balances comes
from the
Cheque Balance. But it would be better if this Balance comes more from the Cash
Balances or
the Balance in Current Account.
CASH CONVERSION CYCLE OF IOCL:
(in Days)
Particulars 2005-06 2006-07 2007-08 2008-09
Average
Days of Sales Outstanding 13 .98 11.3 6 11.09 8.25
11.17
Days of Sales in Inventory 50.67 4 1.65 50.3 3  3 4 .95
4 4 .4 0
Days of Payable Outstanding 3 7.4 6 3 1.07 3 1.50 27.20
3 1.81
Cash Conversion Cycle 27.19 21.93  29.92 16.00
23 .76
Table9: Cash Conversion Cycle
ANALYSIS:
 Cash conversion cycle is likely to be negative as well as positive.
 A positive result indicates the number of days a company must borrow or tie
up capital
while awaiting payment from a customer. A negative result indicates the number
of days a
company has received cash from sales before it must pay its suppliers.
 Of course the ultimate goal is having low CCC, if possible negative. Because
the shorter
the CCC, the more efficient the company in managing its cash flow.
 It can be seen that the Cash Conversion Cycle for Indian Oil is on the higher
side with an
average of 23 .76 days. It means that IOCL have to borrow for 23 .76 days to
finance its
working capital requirement.
 The main reason for this high CCC is a very high Inventory Holding Period.
This is
because IOCL purchases Crude from the International Market and so have to
maintain a high
Inventory to meet the unforeseen requirements.
 The Days of Sales Outstanding is decreasing yearly which is a positive trend
and is
Lowering the Cash Conversion Cycle
 But the Days of Payable Outstanding is also decreasing yearly. This is mainly
due to the
Circular by the Goverment of India which has restricted the payment period to
be 3 0 days
from the receipt of the delivery of the crude.
 The Year 2008-09 shows the lowest CCC of 16 days. The main reason behind this
is the
lowest Inventory Holding Period of 3 4 .95 days.
 IOCL should try to get more credit period from its Creditors and lower the
Inventory
Holding to lower this CCC even negative to better it Cash Flow position.
ANALYSIS OF THE DEBTORS IN THE EASTERN REGION:
Registration with DGS&D

 Registration with DGS&D is a process by which firms can get enlisted as an
approved
supplier to qualify for participation in DGS&D procurement programme.
 DGS&D registers suppliers for specialized items after verification of their
technical
capability, financial status and reliability as a supplier.
 This registration is widely taken as a benchmark by other procurement
agencies in India
both in the State & Central Sectors
 20 Registration centres across the country deal with applications for
registration for
registration on single window disposal basis.
Different Categories of Registration:

 Indigenous Items:
 Indian Manufacturers/ Assemblers/ Converters.
 Authorized Agents/ Distributors of registered Indian Manufacturers
 Stockist of certain specified indegenous stores
 Imported Items:
 Foreign Manufacturers with or without Indian Agents
 Stockist of Imported Stores
 Suppliers of Inported Stores
Advantages In Associating with DGS&D:

To Suppliers:
 Its registration is held in high esteem by all Govt. Departments.
 Award Of Contract lends respectability & Image enhancement.
 Marketing effprt requires is nominal.
 Consistent & Uniform purchases policies & procedures
 Availability of Technical guidance for upgrading manufacturing process &
for building product quality
 Uniform Quallity Assurance techniques lead to standardization
 Registered Suppliers are given prior intimation about tenders.
To Buyers:
 Facility of Bulk purchase of lowest competitive price.
 Enables buying as & when required
 Saves effort involved in tedious & frequent tendering
 Just in Time availability of suppliers & inventory management
 Availability of quality goods with full quality assurance back-up
Benefits of DGS&D Registration:

 Rate contracts for Govt. Purchases concluded with registered firms.
 Registered firms granted exemption from earnest money/ security deposit.
 Tender enquiries are supplied free of cost to Small-scale Units
 Issue of advance tender notices to concerned registered firms.
Quality Assurance Wing:

 Quality Assurance wing of DGS&D(formally Known as Inspection Wing) is the
Inspection Agency of the Govt. Of India.
 Consists of a team of professionally qualified experts, trained in India &
abroad in
various disciplines of Engineering.
 Renders inspection & technical services for Quality Assurance in
procurements activities
 Technical arm of DGS&D providing complete support in purchase activities by
laying
down specifications, assessing the vendors, technical evaluation of bids &
assuring
quality of stores for their conformity.
 It has 3 5 centres covering all industrial locations in the country.
 Provides third party inspection service for civil indentors.
 Functions:
 Quality assurance of products at various stages of manufacture,
commissioning &
testing
 Preparation of technical specifications for tender enquiry &
technical evaluation
of bids
 Vendor assesment for placement of contracts and registration
 Testing & evaluation of stores
 Failure investigation of stores
 Development of small scale industries and KVIC units
 Quality Audit of supplies at users end
 Provides single window service by giving information about DGS&D
functions to
the indentors & the industry
 Assisting BIS in preparation and updating of National Standards.
Sales in DGS&D Sector for 2008-09 & 2009-10 in the Eastern
Region:
Amt.(in
Crores)
Month 2008-09 2009-10 %

Increase(Decrease)
April 123 .84  176.4 8
4 2.51
May 14 3 .04  199.98
3 9.81
June 14 9.02 192.26
29.02
July 14 3 .08 24 3 .59
70.25
August 14 7.71 222.28
50.4 8
September 166.80 24 2.80
4 5.56
October 13 8.15 219.22
58.68
November 178.70 202.12
13 .11
December 193 .01 214 .90
11.3 4 
January 167.24  166.4 7
-0.4 6
February 183 .3 7 187.4 1
2.20
March 24 3 .85 199.04 
-18.3 8
Total 1977.81 24 66.55
24 .71
Table 10 : Sales in DGS&D Sector for 2008-09 & 2009-10
Fig.19 : Sales in DGS&D Sector for 2008-09 & 2009-10
ANALYSIS:
 It can be seen from the above table that the Sales in the DGS&D Sector for
Eastern
Region has seen a constant growth in 2009-10 over the previous year.
For every month,
except January and March, the sales has increased from 70 to 2%. The
overall growth of
sales for the year is also showing positive trend and has a stable
growth of 24 .71%.
 This is mainly due to the excess demand of Lubes and MS/HSD in the Railways
and
AirForce.
 The drop in Sales in the month of March is due to the stricter credit
policy due to the year
ending and more focus on the Credit Collection.
Sales Figure of DGS&D Customers on Month-wise basis in 2009-10(ER):
Rs.(in Crores)
Customers DGS&D Rly Army Air

Force DGBR
Month
April 8.74  100.4 8 17.75
4 2.3 6 7.4 2
May 15.58 105.4 0 21.92
4 3 .61 13 .22
June 16.03  109.85 24 .71
3 4 .21 7.4 6
July 17.21 13 2.86 24 .55
4 3 .60 25.3 6
August 14 .4 7 115.72 24 .82
4 0.02 27.79
September 23 .94  118.3 4  28.61
50.92 20.4 6
October 15.85 117.68 24 .4 0
4 0.29 21.00
November 18.64  91.54  23 .3 3 
4 5.94  22.67
December 19.88 114 .28 25.15
3 5.06 20.53 
January 18.86 92.22 16.73 
22.69 15.97
February 11.81 100.61 20.3 2
23 .70 3 0.95
March 5.68 125.72 25.69
22.3 5 19.60
Total 186.69 1,3 24 .70 277.98
4 4 4 .75 23 2.4 3 
Table 11: Sales Figure of DGS&D Customers on Month-wise basis in 2009-10(ER)
Outstanding in DGS&D Sector as on 3 1 March 2010(ER):
Rs.(in Crores)
Particulars DGS&D Rly Army Air Force
DGBR Total
Opening Balance 18.57 51.01 17.4 5 25.4 6

4 4 .14  156.63 
Current Months Sales 5.68 125.72 25.69 22.3 5
19.60 199.04 
Total(A) 24 .25 176.73  4 3 .14  4 7.81
63 .74  3 55.67
Collection(B) 14 .01 14 6.22 3 2.3 5 28.09
3 4 .24  254 .91
Outstanding (A-B) 10.24  3 0.51 10.79 19.72

29.50 100.76
Table 12 :Outstanding from DGS&D as on 3 1.03 .2010 (ER)
ANALYSIS:
 From Table 12 it can be seen that Railways contribute about 53 .07% in the
total sales in
the DGS&D Sector but contributes only 3 0.27% in the outstanding in DGS&G
Sector.
This signifies a very stable collection period and regulation over the
outstanding despite
the huge transactions it gives ti IOCL.
 On the other hand DGBR has contributed only 9.4 2% in the total sales in DGS&G
Sector
but has 29.27% of the total oustanding in this sector. This is because of
the negotiated
credit period with IOCL and it is regulated by the Central Government of
India and IOCL
has no control over it.
Particulars DGS&D Rly Army Air Force DGBR

Total
Sales 186.69 13 24 .7 277.98 4 4 4 .75
23 2.4 3  24 66.55
Outstanding 10.24  3 0.51 10.79 19.72
29.50 100.76
Outstanding as % of
Sales 5.4 9 2.3 0 3 .88 4 .4 3 
12.69 4 .09
Table13 :Showing Outstanding as a Percentage of Sales in DGS&D Sector as on

3 1.03 .2010(ER)
Fig. 20 : Comparison of the Outstanding as a % of Sales in Eastern Region And
Overall
for the Company.
ANALYSIS:
 The above graph clearly depicts that the Outsatnding in DGS&G, Army, Airforce
and
DGBR in the Eastern Region shows a sharp deviation from the Overall
Outastanding
figure . Only the Railways has it near the overall Average.
 Specially the DGBR shows a sharp deviation from the National Average of 2.14 
and
stands at 12.69. But as already stated previously, that the Central
Government fixes this
credit period in the Annual Budget with this Government Bodies and IOCL has
to abide
by the Credit terms fixed by Government.
 Even the Average of the DGS&G is which is 4 .09 is much higher than the
Overall
average of 2.06 and Army and the Railways all others have this figure higher
than the
average.
 From this it can be inferred that the Government has fixed different credit
fecilities for
different Government Bodies.
The Average Collection Period for DGS&D can be calculated by the following
formula:
Average Collection Period= Total Outstanding / Daily Sales
Where, Daily Sales= Current Month Sales / Number of Working Days in a Month
Considering 26 days a month the Average Collection Period for Railways for month of
March is
Daily Sales=125.72/26 = 4 .83 5
Average Collection Period = 3 0.51/4 .83 5
=6.3 1 Days
Similarly, the ACP is calculated for the other customers shown in the following
table.
(In Days)
Air
Customers DGS&D Rly Army Force DGBR
Total
Month
April 3 1.3 7 14 .57 20.51 13 .55 13 2.4 9

20.68
May 24 .88 10.83  22.3 3  3 7.94  91.4 1
20.3 1
June 3 3 .66 12.77 23 .18 21.4 9 88.4 2
20.3 4 
July 27.68 13 .68 22.08 16.66 3 9.50
18.74 
August 4 0.82 16.23  29.83  19.55 20.22
20.4 7
September 3 2.58 10.16 18.4 0 13 .66 25.50
15.3 8
October 21.15 16.13  22.14  14 .89 28.81
22.63 
November 4 2.21 14 .03  23 .4 7 15.21 3 4 .4 2
20.28
December 3 3 .58 11.87 23 .3 3  16.27 3 1.79
17.84 
January 3 8.04  16.05 26.08 27.57 50.59
24 .4 4 
February 4 0.85 13 .18 22.3 3  27.93  3 7.08
21.73 
March 4 6.87 6.3 1 10.92 22.96 3 9.13 
13 .16
Total 17.11 7.19 12.11 13 .83  3 9.60

12.75
Table 14  : IOCL`s Average Collection Period of DGS&D (ER) for 2009-10
Fig. 21: Comparison of IOCL`s ACP of DGS&D (ER) with Overall ACP for 2009-10
ANALYSIS:
 From Table 14  , we can see that the Average Collection Period for the DGS&D
customer
is 12.75 days, i.e. 13  days approximately which is much higher than the
Overall average.
 Fig. 21 shows the deviation of the ACP of different DGS&D customers from the
Overall
Avearge of 7.53 . This shows that there is a huge deviation for DGBR and
Airforce and
other DGS&D. This has effected the liquidity of the Company and created a
cash flow
problem.
 For most of the DGS&D customers the negotiated credit period varies from 15,
3 0 to 60
days . so the ACP is high in their cases. From that perspective it can be
said that the
Customers are following the Negotiated period of Credit.
Sales and Outstanding of Non DGS&D Customers till 3 1 March 2009 (ER):
Customer Sales (in Crs) Outstanding(in Crs)

%
Fertilizer 3 908.78
56.85 1.4 5
Steel Plant 1523 .74 
20.4 0 1.3 4 
Power House 1296.28
20.87 1.61
Aviation 152.68
2.4 9 1.63 
Shipping Comapny 3 1.10
0.63  2.03 
LPG 3 1.89
0.51 1.60
Export 292.67
4 .84  1.65
Navy 21.91
0.27 1.23 
R/O Agency 4 015.57
68.51 1.71
Others 14 3 72.75
14 0.65 0.98
Total 2564 7.3 7 3 16.02

1.23 
Table 15 : Sales and Outstanding of Non DGS&D Customers till 3 1 March 2009 (ER)
ANALYSIS:
 From the Table 15 it can be seen that about 56.03 % of the Total Sales in the
Non
DGS&D sector comes from the Other Customers but they contribute only
4 4 .50% in the
total Oustanding in the same.So the Outstanding from the Non DGS&D sector
from the
Other companies is only .98% of the Sales in the same which is a good
indication.
 Overall it can be seen that only 1.23 % of the total Sales in this sector is
Outstanding
amount which reduces the chances of bad dedt and indicates the efficient
collection
procedure of IOCL.
Average Collection Period of Non DGS&D Customers in 2009-10:
Customer name
Period(Days)
Fertilizers
4 .58
Steel Plant
4 .22
Power House
5.07
Aviation
5.13 
Shipping Co.
6.3 8
LPG
5.03 
Export
5.20
Navy
3 .88
RO/ Agency
5.3 7
Others
3 .08
Table 16 :Average Collection Period of Non DGS&D Customers in 2009-10
Fig. 22 : Comparison ofAACP of Non DGS&D Customers with Overall in 2009-10

 TheFig. 22 shows the Average Collection Period for IOCL and compares this ACP
with
the ACP of the different Non DGS&G Customers.
 The ACP for the Company is 7.81 in 2009-10 but the ACP for all of the Non
DGS&D
Customers is much less than that. The Shipping Co. has the ACP of 6.3 8 which
is
highest among the Non DGS&D Customers.
 So it can be said that the Eastern Region has maintained a strong regulation
of the
Oustanding for the Non DGS&D Customers.
Comparative Analysis of IOCL with BPCL & HPCL
DEBTORS TURNOVER RATIO AND DEBTOR DAYS (COLLECTION PERIOD)

It is a test of the liquidity of the debtors of a firm. The debtors turnover shows
relationship
between credit sales and debtors of a firm.
Company Ratios 2005-06 2006-07 2007-08 2008-

09 Average
Debtor Turnover Ratio 27.3 5 3 2.78 3 6.63 

4 8.4 6 3 6.3 1
IOCL Average Collection
Period(Days) 13 .3 5 11.14  9.96
7.53  10.50
Debtor Turnover Ratio 53 .18 57.96 60.70

51.96 55.95
HPCL Average Collection
Period(Days) 6.86 6.3 0 6.01
7.03  6.55
Debtor Turnover Ratio 64 .71 70.75 75.65

101.98 78.27
BPCL Average Collection
Period(Days) 5.64  5.16 4 .83 
3 .58 4 .80
Table 17: Comparison DTR and ACP of IOCL with HPCL and BPCL
ANALYSIS:
Fig. 23 : Comparison DTR and ACP of IOCL with HPCL and BPCL
• The Average Collection Period has continuously decreased for IOCL and BPCL
over the
period of 2005-06 to 2008-09 whereas it has incresed for HPCL in the year
2008-09 after
a constant decrease over the previous 3  years.
• Moreover the decrease in the Collection Period for IOCL is more acute than
its
counterpart BPCL. For IOCL the ACP has decreased almost 4 3 % which shows
that
IOCL has a better collection procedure and credit policies than its
competitors.
• The situation is a little alarming for HPCL because the ACP has increased
17% in the
year 2008-09 after a slow decline over the previous.
• However the average of ACP for IOCL is maximum among the chosen 3 
comapanies
putting BPCL at rank1 followed by HPCL and IOCL. But the Average is
definite going
to decrease over the years with the present collection procedure which IOCL
is following.
Company 2005-06 2006-07 2007-08 2008-

09 Average
IOCL 3 .66 3 .05 2.73 
2.06 2.88
HPCL 1.88 1.73  1.65
1.92 1.79
BPCL 1.55 1.4 1 1.3 2 0.98
1.3 2
Table18 : Debtors as a percentage of Gross Sales for IOCL, HPCL and BPCL
Average Sales of the 3  Companies from 2006 to 2009:(Rs in Crores)

 IOCL – 2,3 5,3 73 .62
 HPCL – 96,4 3 9.4 0
 BPCL – 1,14 ,919.51
The Debtors as a percentage of Gross Sales is seen in the above table which shows
that
IOCL is definitely on the higher side in comparison to HPCL and BPCL. But the sales
of
IOCL is almost double than the that of both the companies. So considering the size
of the
business it is obvious that the inventory and the Debtors will be on the higher
side. But
the positive side of it is that it is constantly coming down. Even in the year
2007-08
which was a year a great turmoil they maintained a low debtor percentage of 2.73 .
LIQUIDITY ANALYSIS:
Company Ratios 2005-06 2006-07 2007-08 2008-09 Average
Current Ratio 1.4 2 1.3 1 1.50 1.25 1.3 7

IOCL Quick Ratio 0.4 8 0.4 8 0.60 0.55 0.53 
Cash Ratio 0.02 0.03  0.02 0.02 0.02
Current Ratio 1.3 8 1.13  1.55 1.3 6 1.3 6

HPCL Quick Ratio 0.4 0 0.3 3  0.3 8 0.4 5 0.3 9
Cash Ratio 0.01 0.01 0.02 0.05 0.02
Current Ratio 1.4 1 1.21 1.3 5 1.19 1.29

BPCL Quick Ratio 0.4 5 0.4 4  0.62 0.66 0.54 
Cash Ratio 0.05 0.08 0.07 0.03  0.06
Table19 :Comparison of Liquidity Analysis of IOCL with HPCL and BPCL
ANALYSIS:
Fig.24  :Line graph comparing Current Ratio and Quick Ratios of IOCL, HPCL and BPCL
• The Current Ratio and the Quick(Acid Test) Ratio for all the 3  Companies is
showing a fluctuating trend over the years.
• The year 2006-07 had shown a decrease in the Current Ratios for all the
companies whereas the year 2007-08 showed a sharp increase in the same. But
for
IOCL the increase was maximum in the year 2007-08.
This rise is a result of the sharp increase in the fuel prices in this year
which
resulted in larger inventory for all the companies specially for IOCL.
• For IOCL, though the Current Ratio increased sharply in the year 2007-08, the
Quick ratio rise was less. This indicates that the inventory has increased
drastically in this year. From the balance sheet it can be seen that the
inventory
has increased by 25.25% in this year. Parallaly the loans and advances had
also
increased by 129.1% in the same year. This abrupt rise is because IOCL
received
the Oil Bonds issued by the Government of India.
• Same is the case for HPCL as they also received the Oil Bonds and the rise of
the
inventory, but the effect of rise of inventory was most pronounced because
the
Quick ratio has incresed at a lesser rate in 2008-09.
• For BPCL the rise in Current Ratio is lesser in comparison with the rise of
the
Quick Ratio which had rised at a very rapid pace in 2007-08. The main reason
behind it is the rise in the grant of loans to other companies which was
considered
as good.The Cash Ratio is more or less constant for the chosen companies and
among the 3  BPCL maintains a higher cash and bank balances which is a good
sign of liquidity of the company.
• So in conclusion it can be said that though IOCL has highest value of for the
Current Ratio 1.3 7 but it is below 1.5 which is considered as good. The
Quick
Ratio is also on the higher side. But in comparison with size of Sales of
IOCL it
has maintained a stable ratio. But there is a chance of improvement in
controlling
the Inventory and the Debtors for IOCL which can improve their liquidity
position more.
CASH CONVERSION CYCLE:
(in
Days)
Particulars 2005-06 2006-07 2007-08 2008-09
Average
Days of Sales Outstanding 7.4 7 6.89 6.4 7 7.4 8
7.08
Days of Sales in Inventory 4 1.90 3 5.3 7 4 5.4 9 29.3 4 
3 8.03 
Days of Payable Outstanding 26.74  19.11 26.10 18.84 
22.70
Cash Conversion Cycle 22.63  23 .15 25.86 17.98
22.4 1
Table 20: CCC of HPCL
(in
Days)
Particulars 2005-06 2006-07 2007-08 2008-09

Average
Days of Sales Outstanding 6.14  5.63  5.26 3 .85

5.22
Days of Sales in Inventory 4 2.19 3 2.10 3 4 .70 18.4 3 
3 1.85
Days of Payable Outstanding 18.94  23 .28 28.3 1 17.23 
21.94 
Cash Conversion Cycle 29.3 9 14 .4 4  11.65 5.04 
15.13 
Table 21: CCC of BPCL
ANALYSIS:
Fig. 25: Comparison of CCC for IOCL, HPCL, BPCL

PROFITABILITY RATIO:
Company Ratios 2005-06 2006-07 2007-08 2008-
09 Average
IOCL Gross Profit Ratio 4 .4 7 5.00 4 .51

1.50 3 .87
Return on Capital
Employeed 16.89 25.78 24 .53 
9.84  19.26
Return On Fixed Assets 11.26 13 .69 12.3 2
4 .78 10.51
HPCL Gross Profit Ratio 0.4 2 2.3 5 1.17

0.65 1.15
Return on Capital
Employeed 3 .26 20.4 9 10.50
6.64  10.22
Return On Fixed Assets 5.53  17.81 9.51
4 .93  9.4 5
BPCL Gross Profit Ratio 1.82 4 .27 3 .92

3 .14  3 .29
Return on Capital
Employeed 4 .4 5 25.79 22.24 
8.28 15.19
Return On Fixed Assets 2.64  15.27 12.4 1
5.26 8.89
Table 22: Profitability Ratios of IOCL, HPCL and BPCL
ANALYSIS:
Fig. 26: Area graph showing Profitability Ratios of IOCL, HPCL and BPCL
Fig.27: Line Graph showing Return on Capital Employedand Return on Fixed Assets
• From the above graph we can see that after the year 2006-07 which showed a
huge rise in
the Gross Profit for all the companies, there has been a downward trend for
the profit of
all the companies. For IOCL it can be said that there had been a huge fall
in the
profitability and hence the Gross Profit Ratio. This is mainly due to a
huge rise in the
Manufacturing, Administration, Selling and Other Expenses. This expense
shot up to
Rs. 1603 52.58 Crores in 2008-09 from Rs. 115163 .07 Crores in 2007-08. The
Raw
Material consumption increased in this year which was due to the increase
in the
purchase by 24 .59% which decreased the Gross Profit of the Company.
• The Return on Capital Employed is on the very higher side for all the 3 
Companies. This
is because all these companies being PSU s a very small portion of the
Capital is through
Equity Shares.
• The Return on Fixed Assets has been on a comparatively higher position for
IOCL than
HPCL & BPCL. The main difference in the Fixed Assets of the other two
Companies is
with IOCL is in the Plant & Machinery. The Plant & Machinery for IOCL is
almost 3 
times that of the other 2 Companies. This is due to the huge Refineries and
Bottling
Plants which IOCL pocess.
• So in conclusion it can be said that IOCL has maintained the highest
average of Gross
Profit Ratio among the 3  Companies. Though there was a sharp decrease in
the
Profitabilty in the Year 2008-09 the situation has completely changed in
2009-10 where
the company has registered a gross profit of 10000 Crores. So in terms of
profitability
also IOCL is in a better situation than its PSU Competitors.
ANALYSIS OF DEBTORS UNDER WBSO
Monitering and Control on Beyond Credit Outstanding:
Guidelines are issued from time to time underlining the need to moniter the
outstanding and
control the incidents of beyond credit outstandings. Guidelines are also issued on
the checks and
control to be exercised at supply locations to obviate the possibility of releasing
supply beyond
authorised limit. The instructions are iterated below:
• The copy of Credit Approval Note should beavailable with the location
before
commening credit supply to any customer.
• The credit approval, apart from other things must specifically contain the
following:
 Product to be supplied on credit
 Monetary limit of credit. Where the product is to be supplied from
more than one
location monetary limit for each of the supply location.
 Number of days credit and Validity Period
• Based on above, location/finance in-charge of location shall feed the
required
details/limit in the Credit Master immidiately. Supply shall not be
released beyond the
approved limits.
• Following is ensured in TDM:
 Password security to be maintained and password to be changed
periodically.
 TDM terminal to be installed in the rooms of the Location in-
charge/finance in-
charge for authorizing exceptional cases instantly and over –
viewing of
functioning of S&D.
 Only Finance in-charge/location in-charge to exersise financial
authorization as
per TDM option.
 Daily review of exceptional listing by Location in-charge/finance in-
charge.
 Review of one line PAD on Daily/ monthly basis by Location in-
charge/finance
in-charge.
• In case of Cash and Carry Customers, product to be supplied only against:
 DDs or Pay Orders for the value of product or
 Cheque, if cheque fecility have been approved for the party or
 Fund Transfer Credit(FTC) covering the value of suply or
 Adequete credit balance in the PAD
Customerwise Outstanding and Beyond Credit Outstanding for WBSO:
Table 23 :Customerwise Tabulation of Outstanding and Beyond Credit Outstanding under

WBSO
ANALYSIS:
Fig.28: Bar chart showing Outstanding and Beyond Credit Outstanding under WBSO
Fig.29:Line Graph showing the Beyond Credit Outstanding as a % of Outstanding
 The Outstanding for the 6 Months from January to June in WBSO is analysed in
this
Section. It can be seen that the Outstanding in the month February is
highest among the
chosen 6 months which had drastically decreased in the month of March.
 The beyond credit oustanding for the first 3  months is also showing a
downward trend
reaching the least in the month of March. This is because of the closing in
the month of
March when the Debtors are pushed to make their due payments. All the
lagging
outstandings are tried to be cleared in this month. The Private companies
are focussed in
this month March and their Outstanding decreased drastically in this month
by 4 2.63 %
along with a more or less decrease from all other both Private and
Goverment.
 But what is alarming in this figures is that the beyond credit outstanding
has jumped in
the Month of April to 6.19% from 4 .56% in the previous month though the
oustanding
has increased minimally by about 19.81%. This may be due to the negligence
from the
administration in this month to collect the previous month`s outstanding
which was
shown up in this month as beyond credit outstanding.
 The situation normalized after April in the months of May and June when the
outstanding
increased by 13 .87% in May but decresed by 5.4 6% in the month of June, but
for both the
months the beyond credit outstanding decreased to 5.3 2% and 5.12%
repectively.
 So in conclusion it can be said that Indian Oil WBSO has a highly fluctuating
trend of
Outstanding from debtors as well as the Beyond Credit Oustanding which can
result into
the increase in the bad debts of the company.
Productwise Outstanding and Beyond Credit Outstanding for WBSO:
Table24 : Productwise Tabulation of Outstanding and Beyond Credit Outstanding under

WBSO
ANALYSIS:
Fig.3 0:Graph showing Productwise Outstanding under WBSO
 From Fig. 3 0 it can be seen that among all the products, Naphtha and FO is
showing the
highest Credit Outstanding. This due to the credit policy for this two
products where the
Company allows 3 0 days of credit to the Customers. But the Beyond Credit
Outstanding
for this two Products is almost nil for the considered 6 Months. This is a
highly positive
sign becuase most of the Naphtha and FO customers belongs from Private-
Others
Category.
 Almost 99% beyond credit outstanding comes from the Lubes and MS/HSD but
relatively the outstanding figures for these two products are almost half
that of FO and
one-third that of Naphtha. The Credit Period for the Lubes is 60 Days for
Government
and 3 0 days for the Non- Government.
 By analysing the actual data it can be seen that the maximum beyond credit
outstanding
for the Lubes and the MS/HSD comes from the RO Agencies, Private as well as
Government Bodies. But the the Beyond Credit Outstanding comes mainly from
the
Government Bodies. So the debts are secured in that sense.
 But this extra fecility should not be given to the Government Companies
because they are
already enjoying an extra 3 0 days fecility over the Private Companies.
Rs. (In
Lacs)
Row Labels Outstanding Amount Beyond Credit Amount
%
POWER HOUSE-
GOVT 72.65 6.75
9.29
LDO 4 4 .54  0.00
0.00
LUBES 28.12 6.75
24 .00
STEEL PLANTS-
GOVT 3 62.65 174 .3 7
4 8.08
BITUMEN 50.23  0.00
0.00
LUBES 153 .3 8 13 7.4 3 
89.60
MS/HSD 14 0.15 3 6.94 
26.3 6
P&S OTHERS 18.89 0.00
0.00
GOVT-OTHERS 1,083 .4 2 14 7.3 7

13 .60
BITUMEN 13 3 .58 0.00
0.00
FO 4 .27 0.00
0.00
LDO 564 .95 0.00
0.00
LPG 18.3 7 0.00
0.00
LUBES 3 12.08 14 7.3 7
4 7.22
MS/HSD 4 3 .15 0.00
0.00
P&S OTHERS 7.02 0.00
0.00
LPG-PVT 1.4 7 0.04 

2.73 
LPG 1.4 7 0.04 
2.73 
STEEL PLANTS-PVT 13 .08 0.00

0.00
LUBES 13 .08 0.00
0.00
POWER HOUSE-PVT 2.80 0.00

0.00
LUBES 2.80 0.00
0.00
PRIVATE-OTHERS 8,109.72 119.68

1.4 8
BITUMEN 23 .63  0.05
0.23 
FO 2,618.01 0.00
0.00
LUBES 212.99 79.21
3 7.19
MS/HSD 4 59.68 4 0.4 2
8.79
NAPHTHA 4 ,674 .14  0.00
0.00
P&S OTHERS 121.28 0.00
0.00
RO/AGENCIES 179.56 74 .29

4 1.3 7
LPG 0.4 7 0.00
0.00
LUBES 19.75 0.00
0.00
MS/HSD 159.3 4  74 .29
4 6.62
Grand Total 9,825.3 6 522.50

5.3 2
Table 25 :Pivot Table showing the outstanding status Customerwise and Productwise
CASE STUDY
Issuance of Credit Note against an Outstanding of Rs. 653 3 19 on account of
Customer M/s Rifle Factory, Ishapore (SAP 13 8174 ) due to discounts not being
passed.
1. M/s Rifle Factory, Ishapore is IOCL`s major Customer under defence category
in WBSO.
IOCL has All India Rate Contract with Ordnance Factory Board for the supply
of various
grades of Lubricants for their 3 9 Factories. M/s Rifle Factory, Ishapore is
one such Unit.
2. IOCL had lodged a claim against their outstanding and M/s Rifle Factory have
replied
back that they have no outstanding to IOCL for all the factories.
3 . After detailed investigation of all the invoices IOCL have identified the
following.
4 . M/s Rifle Factory have placed various supply orders on IOCL according to the
rate in the
Rate Contract and have made supplies accordingly. However there are certain
cases in
which higher rates have been charged and hence those cases have resulted in
generation
of non-claimable outstanding in their PAD with IOCL.
5. No Credit Note has been Issued till date for the cases mentioned in the
Note.
(in Rs.)
Invoice No. Qty (in Charged Applicable Invoice Correct

Difference
Ltrs) NTV LAV Value(actual) Invoice
605163 175 94 50 4 5.13  3 0.94  511009 3 4 8790

162219
6084 94 4 67 84 0 55.88 3 4 .66 614 25 3 8099
23 3 26
6084 94 650 84 0 4 2.21 27.71 4 63 98 3 04 60
1593 8
6125224 4 6 3 150 61.04  3 7.95 251612 1564 3 3 
95179
61599964 7 94 50 60.4 0 56.96 74 6923  704 3 83 
4 254 0
61600014 5 94 50 59.26 55.82 73 2825 690285
4 254 0
6160003 77 94 50 60.4  56.96 74 6923  704 3 83 
4 254 0
61601574 3  94 50 60.81 57.3 7 751993  7094 53 
4 254 0
616159880 3 3 60 55.3 0 53 .4 0 24 3 14 8 23 4 794 
83 54 
6195103 3 1 903 0 4 3 .95 3 8.55 520056 4 56159
63 897
620557593  4 20 4 3 .95 3 8.55 24 189 21217
2972
622284 222 504 0 4 3 .95 4 0.15 290264  265167
25097
624 3 93 3 00 84 00 52.3 2 4 4 .3 5 565720 4 7954 3 
86177
TOTAL
653 3 19
Table 26: Invoice Details of M/s Rifle Factory, Ishapore
Bill Value ED(16%) &
Cess(2%) Sales Tax(12.5%)
Date Invc. No. Charged App. Diff. Charged App
Diff. Charged App Diff.
Amt. Amt.
2.4 .2004  605163 175 511,009 3 4 8,790 162,219 68,23 7

4 6,781 21,4 55 19,654  13 ,4 15 6,23 9
1,3 65
93 6 4 29
16.7.2004  6084 94 4 67 61,4 25 3 8,099 23 ,3 26 7,510
4 ,658 2,852 6,825 4 ,23 3  2,592
150
93  57
21.12.2004  6084 94 650 4 6,3 98 3 0,4 60 15,93 8 5,673 
3 ,724  1,94 9 5,155 3 ,3 84  1,771
113 
74  3 9
11.3 .2005 6125224 4 6 251,612 156,4 3 3  95,179 3 0,764 

19,127 11,63 7 27,957 17,3 81 10,575
615
3 83  23 3 
9.6.2005 61599964 7 74 6,923  704 ,3 83  4 2,54 0 91,3 25

86,124  5,201 82,991 78,265 4 ,727
1,827
1,722 104 
29.11.2005 61600014 5 73 2,825 690,285 4 2,54 0 89,601

84 ,4 00 5,201 81,4 25 76,698 4 ,727
1,792
1,688 104 
21.2.2006 6160003 77 74 6,923  704 ,3 83  4 2,54 0 91,3 25

86,124  5,201 82,991 78,265 4 ,727
1,827
1,722 104 
13 .8.2006 61601574 3  751,993  709,4 53  4 2,54 0 91,94 5

86,74 3  5,201 83 ,555 78,828 4 ,727
1,83 9
1,73 5 104 
21.5.2007 616159880 24 3 ,14 8 23 4 ,794  8,3 54  29,729

28,708 1,021 27,016 26,088 928
595
574  20
16.8.2007 6195103 3 1 520,056 4 56,159 63 ,897 63 ,4 99

55,697 7,802 57,784  50,684  7,100
1,905
1,671 23 4 
19.1.2008 620557593  24 ,189 21,217 2,972 2,953 

2,591 3 63  2,688 2,3 57 3 3 0
89
78 11
3 0.8.2009 622284 222 290,264  265,167 25,097 3 5,4 4 1
3 2,3 77 3 ,064  3 2,252 29,4 63  2,789
1,063 
971 92
15.2.2009 624 3 93 3 00 565,720 4 79,54 3  86,177 61,528

52,156 9,3 73  62,858 53 ,283  9,575
1,84 6
1,565 281
TOTAL 5,4 92,4 85 4 ,83 9,166 653 ,3 19 684 ,556
602,4 21 82,13 4  573 ,152 512,3 4 6 60,806
Table27:Breakup of the invoice of M/s Rifle Factory in ED, Sales Tax

and Cess
ANALYSIS
SUGGESTION:
The difference in charged NTV and applicable LAV per invoice is having difference
on account
of exise (Rs. 8213 4 ) and on account of Sales Tax (Rs.60806) ie. Total amount
Rs.14 294 0. The
same had been calculated on the basis of the breakup of the pricing. The charged
NTV had been
checked with the SAP and found correct. The Applicable LAV had been checked with
the
pricing agreement as per attached annexures and found to be correct.
FINAL DECISION:
ED , WBSO approved the issuance of credit note for differential amount of price for
mentioned
invoices except for ED and Cess differential. A Credit Note of Rs.571185 was issued
for Rifle
Factory.
RATE CONTRACT FOR SUPPLY OF DIFFERENT TYPES OF LUBRICANTS BY

GOVERNMENT OF INDIA, MINISTRY OF DEFENCE, ORDANANCE FACTORY
BOARD
• With refence to IOCL`s rate, a Rate Contract was placed on IOCL on behalf
of President
of India for supply of 55 Items in various places of India.
• The period of contract was for 12 months
• The prices towards the supply of various grades of lubricants and greases
was according
to the Annexure 1 & 2.
• The prices were exclusive of Exice Duty@ 16% and Education Cess@ 2% on
Exise
Duty.
• Sales Tax and other Statutory Levels was paid applicable on the Date of
Supply.
• The Ordanance Factory was also entitled for an additional Discount of
Rs.500 per Kl
except for the few items mentioned in the Annexure.
Conclusion :
 The Debtors of IOCL are more or less well managed because though the Sales is
increasing every year the Sundry Debtors are decreasing. So is the Average
Collection
Period which is also showing a downward trend every year.
 But from the Schedules of Sundry Debtors it can be seen that Unsecured Debts
are on the
Higher side in comparison to the Secured loans and almost 67% of the of the
Total Debt
per year is unsecured. Another aspect is that almost 96% of this Unsecured
Loans are
from the Other Companies which are not Subsidiaries of IOCL.
 The debts from the Other Companies are almost 78% of the total Debt which
should be
reduced to meet the Cash Flow of the Company.
 The main problem of the Current Assets of IOCL is the Inventory Control which
shows a
huge fluctuation every year from -16% to 3 5.6%. So a better Inventory
Control
Procedure should be taken up by the company to regulate its Working
Capital.
 The Cash Conversion Cycle is on the higher side for IOCL whose basic cause in
the
Inventory Holding Period only.
 The debtors in the Eastern Region have a higher Average Collection Period
than the
Overall for the Company. If this ACP can be reduced then the Overall
Collection period
can also be reduced which will also help in reducing the CCC of the
Company.
 In comparison to the competitors like HPCL(6.55 days) and BPCL (4 .80 days),
IOCL gas
a much higher Average Collection Period of 10.5 days which can be brought
down if the
Credit period in the DGS&D in decreased as the ACP of Non DGS&D is well
below the
Overall Company average.
Recomendations:
1. Strict collection procedure should be implemented for the Beyond Credit
outstanding
Customers for IOCL. In severe cases Debt Collection Agencies can be
implemented to
collect the debts and reduce the Bad Debts.
2. IOCL restrict the credit period to the consumers specially the DGS&D
Customers so
that the tax proceeds and the consequent equivalents interest amount can be
enjoyed for a
longer policy
3 . Just in Time Inventory mechanism should be followed by IOCL to reduced
the
Inventory Holding Period and there-by the CCC of the Company can be
decreased
mitigating the problem of cash flow.
4 . IOCL should try to get a higher Credit period from its Creditors to
infuse more
liquidity. This can will also solve the Cash flow problems and can allow
IOCL to give a
better Credit Period for its Debtors to retain a competitive edge in this
Highly competitive
market with Private players like Reliance and Essar Oil entering the
scenerio.
5. For better receivable Management, IOCL has to take some Steps:
a. Prices and Discounts should be updated in SAP regularly,so that
correct
challans are generated from time to time.
b. There should be reduction in lead time between Sales Data and
Actual Data of
dispatch from location.
c. All the customers should use the RTGS or Core-to-Core fecility
for better
regulation
6. IOCL buys product at International Prices and it is forced to sell the
products to
ratailers and customers at Goverment regulated prices, which is sometimes
less than the
purchase prices. All this leads to huge loss to IOCL.Therefore IOCL has to
take some
policies:
a. Government should consider the better Pricing Policies to
prevent losses.
b. To allow IOCL to control the prices of the Premium Brands. Rates
of
commercial products like Naphtha and Bitumen should be regulated
correctly.
c. By introduction of differential rate to different income groups
in the society for
the same product. Eg. High rate of LPG cylinders to high income
groups and
subsidized rate to low income groups.
Limitations:
1. Time is definitely the main Constraint. Time was not sufficient enough
to assess all
processes and policies of an organization of the stature of IOCL.
2. Inadequecy of required data is another constraint. In such situations
data is taken with
certain assumptions.
3 . Even if the actual data can be gathered, it is often against the
company policy to
disclose such data in the project report.
4 . 2009-10 Annual Report was not published during the preparation of the
report and so it
is neglcted in many of the analysis.
References:
Books:
Khan M.Y. and Jain P.K. (2007), “Financial Management”, The McGraw-Hill Companies
Pandey I.M.(2008), “Financial Management”
Weblinks:
http://www.iocl.com
http://www.hpcl.com
http://www.bpcl.com
http://myiris.com/shares/research/motilal/INDOILCO_20100129.pdf
http://www.dart-creations.com/article-tree/dbt/Debt_Collections_Law.html
http://www.profitera.com/pdfs/A%20Formula%20for%20Success_Karl%20Boone_Ian%20Robe
rts.pdf
http://www.articlesbase.com/finance-articles/debt-collection-techniques-4 2014 5.html
http://www.feefunding.com.au
http://www.sooperarticles.com/business-articles/things-do-before-selecting-debt-
consolidation-
company-603 3 9.html
http://www.magfinancial.com/account-receivable-management.cfm
http://www.indiastudychannel.com/projects/1583 -working-capital-management.aspx
http://www.ferret.com.au/c/Business-Diagnostics-and-Solutions/Debtor-Control-
n6674 21
http://www.business.qld.gov.au/dsdweb/v4 /apps/web/content.cfm?id=74 15

NNNLK)

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

NNNLK)

Încărcat de

Drepturi de autor:

Formate disponibile

Summer Internship Project Report

Under the kind guidance of

Industry Guide College Guide

Hereby it is certified that the project work entitled – “A Study of Receivable

Dr. Neeraj Sanghi

It’s a privilege to be associated with Indian Oil Corporation Limited, a fortune

1. Introduction to Oil Industry in India

Fig. No. Particulars

UPSTREAM DOWNSTREAM INDUSTRY

Fig.1: Structure of Oil Industry in India

Company Market Share (%)

Table 1: Retail Market Share (as on Nov-2009)

Fig. 2: Market Share of Different Companies in India

Beginning in 1959 as Indian Oil

Registered Office : Indian Oil Bhavan,

Assam Oil Division

• Highest ranked Indian corporate in Fortune’s list of world’s 500 largest

A major diversified, trans-national, integrated energy company, with national

To achieve international standards of excellence in all aspects of energy and

 To maximize creation of wealth, value and satisfaction for the stakeholders.

Care stands for: - Innovation stands for: -

Passion stands for: - Trust stands for: -

• To serve the national interests in oil and related sectors in accordance

• To ensure adequate return on the capital employed and maintain a reasonable

Towards suppliers:- To ensure prompt dealings with integrity, impartiality and

Towards employees:- To develop their capabilities and facilitate their advancement

Towards community:- To develop techno-economically viable and environment-friendly

The Products produced by IOCL are broadly classified into the

1. Liquid Petroleum Gas (L.P.G)

2. Motor Spirit (M.S.)/Gasoline

5. High Speed Diesel Oil (H.S.D)

10. Mineral Turpentine Oil (M.T.O)

Fig. 4 : Organisational Structure of IOCL

 STRUCTURE OF STATE OFFICE:-

 STRUCTURE OF WEST REGIONAL STATE OFFICE (W.B.S.O):-

 STRUCTURE OF HR DEPARTMENT UNDER W.B.S.O:-

 AREA OF OFFICES UNDER W.B.S.O:-

 L.P.G UNDER W.B.S.O:-

 DEPOTS UNDER W.B.S.O:-

Fig. 5: Pipeline Network of IOCL in India

Reaching out to a Billion Hearts

A Prescription for Debt Recovery Management, Towards Reducing

The methodology followed in this project involved the following Phases:

Type of the project:

Interpretation & Recommendation:

 Ways to manage debtors - credit policy and collection procedure

Sub part of credit policy

• Credit policy analysis

• Formulation Collection Policy : For getting fund fastly

B)ANALYSIS OF CREDIT INFORMATION-The information collected from

Customers Evaluation-The 5 C’s-

 CHARACTER- Reputation, Track Record

Effective accounts receivable management can help you in a variety ways:

 Reasons for incurring Debts?

 Confirmation of debt(How to establish correctness of debtors):

 Non Recovery of debts

 Ways to collect Bad Debts:

Electronic funds transfer or EFT refers to the computer-based systems used to

1 RTGS (Real Time Gross For online real time settlement of

2 NEFT (National Electronic For settlement in batch process – 6

3 ECS (Electronic Clearing Netted settlement for bulk

• Stremlined Payment Processing

• Improved Visibility to cash, taking advantage of Error

Fig. 4 : Organisational Structure of IOCL

3  ECS (Electronic Clearing Netted settlement for bulk

Sundry Debtors 6,698.03  6,73 6.06 6,819.23 

Sundry Debtors As a % Of Sales 3 .66 3 .05 2.73 

Debtor Turnover Ratio 27.3 5 3 2.78 3 6.63 

Average Collection Period(Days) 13 .3 5 11.14  9.96

CURRENT RATIO 1.4 2 : 1 1.3 1 : 1 1.5 : 1

QUICK RATIO 0.4 8 : 1 0.4 8 : 1 0.6 : 1

CASH RATIO 0.02 : 1 0.03 1 : 1 0.023  : 1

Net Working Capital 10806.73  93 51.3 1 183 50.3 2 9177.15

Total Current Assets 7.05% 3 5.6% -16.93 %

Total Current Liabilities 15.69% 16.4 1% 2.24 %

Working Capital -13 .4 6% 96.23 % -4 9.98%

b) Fixed Deposit account 14 .63  9.73  9.3 8 10.14 

Opening Balance 18.57 51.01 17.4 5 25.4 6

Outstanding (A-B) 10.24  3 0.51 10.79 19.72

Table 12 :Outstanding from DGS&D as on 3 1.03 .2010 (ER)

Table13 :Showing Outstanding as a Percentage of Sales in DGS&D Sector as on

April 3 1.3 7 14 .57 20.51 13 .55 13 2.4 9

Total 17.11 7.19 12.11 13 .83  3 9.60

Total 2564 7.3 7 3 16.02

Debtor Turnover Ratio 27.3 5 3 2.78 3 6.63 

Debtor Turnover Ratio 53 .18 57.96 60.70

Debtor Turnover Ratio 64 .71 70.75 75.65

Average Sales of the 3  Companies from 2006 to 2009:(Rs in Crores)