322 Corporate Finance
Chapter 17
17. Receivables Management
OBJECTIVES
Know the motivations for credit sales and their impact on profit.
Know how to assess credit risk of selling goods on credit.
Know the credit practices in the tourism industry.
Know the components of credit policy and how to manage them.Fort Aguada Beach Resort (FABR) and The Aguada Hermitage (AH) built into the ramparts of a 16th century
Portuguese fortress, called Aguada Fort, are part of Indian Resorts Hotels Limited (IRHL). Incorporated in
1972, the company is part of the Taj Group of Hotels. Its main objective is to carry on the business of
hoteliering and catering. To achieve this objective the company entered into an operating agreement with its
promoter company Indian Hotels Company Limited (IHCL).
IRHL, under the agreement with IHCL, receives support in the areas of recruitment of personnel, operational
policies, pricing policy, publicity and advertising, sales and reservations, expansion, etc.
IHCL owns and operates a hotel in Goa, called Taj Holiday Village (THV), which is adjacent to FABR and
AH. Though THV is not part of IRHL, they are offered as a package of three hotels in three different price
segments—with THV being the least expensive and AH, the most expensive. The three hotels share common
facilities like health club, sports facilities, restaurants, etc. Thus these hotels offer a wide range of staying
and pricing options to the tourists and, hence, facilitate business rather than act as competitors.
Currently IRHL owns and operates FABR, AH and an air catering unit—all located in Goa. The company’s
business is highly dependent on external factors relating to the arrival of visitors. Factors such as political
instability, disruption in law and order, and regional disturbances could greatly affect international and regional
traffic into India/Goa and, consequently, the occupancy of hotels. The government’s policies pertaining to
the tourism and hotel industry also have a significant effect on the company’s business.
THE TOURISM INDUSTRY IN GOA
Tourism is India’s third largest export industry after readymade garments, and gems and jewelry. The most
significant feature of the tourism industry is its capacity to generate large-scale employment opportunities.
From a small beginning in 1961, tourist traffic to Goa has increased by leaps and bounds to now correspond