What is ‘Gentry-De La Garza Model’
A different way of managing account receivables, proposed by college professors James A. Gentry and Jesus M. De La Garza in the mid-1980s. The Gentry-De La Garza model gives three reasons as to why accounts receivable balances may increase: sales pattern effects, collection experience effects and joint effect. Together they equal the difference between the receivables balances and allow companies to increase the speed of cash inflows and reduce the speed of cash outflows
Explaining ‘Gentry-De La Garza Model’
Because it separates receivables into three quantifiable categories, the Gentry-De La Garza model allows financial managers to instantly detect whether an increase in receivables is due to rising sales levels or faulty credit controls. Eroding collections may be a sign that the company is not forceful or persistent enough in collecting overdue accounts or that credit is being granted too freely. Being able to recognize these issues right away helps a company refine its processes and become more efficient.
Further Reading
- Monitoring accounts receivable using variance analysis – www.jstor.org [PDF]
- Streamlining the management of corporate accounts receivable – www.rtj-mirea.ru [PDF]
- МОНИТОРИНГ УПРАВЛЕНИЯ ДЕБИТОРСКОЙ ЗАДОЛЖЕННОСТЬЮ ПРЕДПРИЯТИЯ – elibrary.ru [PDF]
- Hauptkomponenten des Working Capital-Managements und ihre intra-und interorganisationalen Verknüpfungen – link.springer.com [PDF]
- Grundlagen des Working Capital Managements – link.springer.com [PDF]
