Among the most important economic objectives of any company can be found, to guarantee the sustained growth of its profit levels, for this it is not enough to produce and sell, nowadays technological development makes it possible to carry out commercial transactions from any part of the planet, at any scale and in a minimum time.
For these reasons, economic contracting gains strength, a document prepared before the operations are carried out that reflects the agreements of the parties involved and guarantees compliance with them before national or international institutions.
This work was carried out at the Furniture Company GEDEMAX and its purpose is to evaluate and identify the behavior of economic contracting in the same from the review of this activity and analyze to what extent it affects the economic result of the organization.
During the preparation of the work, a bibliography related to the subject under study was consulted, consultations were made with specialists from the territory recognized in this matter and analyzes were carried out that reveal the non-compliance with the clauses of the economic contract and its impact on the economic result of the Business.
The work carried out contains important elements that can contribute to the improvement of the economic contracting activity, provides arguments for further analysis and thereby achieve decisions that will reverse the current financial situation.
Introduction
Economic contracting is an activity of universal scope. Companies use it when carrying out commercial transactions without discriminating their type or magnitude. The contract is considered an economic phenomenon consisting of a voluntary action of the interested parties where it is revealed by mutual agreement under what conditions a business will be carried out.
The Cuban State requires businessmen to develop commercial relations on the basis of contracts that define by mutual agreement the conditions for the conduct of commercial operations and serve as a legal instrument before the competent bodies when non-compliance occurs in what he settles down.
This work was carried out at the GEDEMAX Furniture Company, which is dedicated to the manufacture and marketing of furniture for tourism investments, foreign currency recovery stores, the Revolution Programs and other institutions in the country.
The objective of the same is to assess the economic contracting process in the furniture company GEDEMAX from the review of this activity and analyze in what measures the economic result of the organization is affected.
In the preparation of this work, updated bibliography on the subject was used and some similar works carried out in another company in the country were reviewed. As research techniques for data collection, interviews with specialists from the company and from other institutions in the province, document review and observation of the entire hiring process were used.
The use of the information that this work reveals can contribute to the improvement of the Company's economic contracting activity and with it to revert to some extent the negative effect that today aspects that are analyzed here cause.
Development
1.1 Theoretical Foundation
The economic contract is the legal means by which economic, patrimonial, cooperation and non-patrimonial relations are established between the economic organizations that operate in the national economy. The economic contract, more than a formal instrument, is a legal relationship, an agreement of wills, from which rights and obligations arise, between two or more economic subjects. The establishment of economic economic relations, through economic contracts (including those that respond to centralized requests by the state), should serve as a basis for economic organizations to establish for themselves a real economic plan, legally supported.
The contracts influence the fulfillment of the plan and its non-fulfillment, by one of the parties, affects the economic results of the organizations; in the observance of the quality required for products and / or services; In the technological discipline, etc., to achieve all of the above, there will have to be legal guarantees for the effectiveness of contractual liability.
The establishment of economic contracts, by economic organizations, and the use of everything derived from this institution, constitutes a necessity for economic subjects, who avoid formalities and therefore, must be an important part of the economic system. It is an autonomous institution, which depends, once agreed, only on the will of the contracting parties.
1.2 Fundamental characteristics of economic contracting
1. All entities with legal personality and basic business units, expressly authorized to sign contracts by the organization that creates them, which are applying business improvement, are obliged to materialize their relationships through economic contracts of different types (services, supplies, labor, buying and selling, insurance, leasing, consignment, execution of works, transportation, etc.).
2. The object of the contract must be drawn up in such a way that the services that comprise it and the requirements that these must meet for its fulfillment are clearly formulated.
3. The starting point for the production of goods and services in business management will be the demand made in contractual relationships.
4. Approval ranges must be established, allowing the decentralization of this activity, with a more agile level of approval, especially in new investments.
5. Grant autonomy to the parties in the establishment of the clauses of the contract, seeking above all, the terms of delivery and quality are met in this order, payment methods and delivery times are established, mutually advantageous, allowing development the initiative between the parties and the seriousness in fulfilling the obligations, as long as there are legal guarantees for this activity.
6. In this sense, certain bank guarantees and loans for productions can be established; penalties for non-compliance with quality parameters or other causes or bonuses for prompt deliveries, which allow for greater efficiency.
7. In the event of non-compliance, you must provide yourself with the power to negotiate or reconcile certain measures and / or compensation and reserve the judicial route, established as the last alternative. If this is used, the effectiveness of its acts must be ensured.
8. For international commercial contracts, this power must be centralized in the authorized entities.
The contract of sale is the most important document that is used in commerce, giving rise to the transfer of property, possession or possession and the use and enjoyment of the goods. It arises through the consent of two natural or legal persons, bilaterally because it is a document signed by said persons and delimits the responsibility of both.
Contracts are onerous because they give rise to costs and expenses that are monetarily covered, commutative because there are two mutual responsibilities and obligations, and transfer of ownership because it implies the transfer of ownership. When closing a negotiation, first of all it must be taken into account that the parameters of the accepted offers must appear in full in the letter of the contract, establishing among its main clauses:
The subjects, the object and the causes that give rise to the contract.
The faculty of the subjects in the signing of the contract, as well as their particular characteristics such as the personality, domicile and generalities of each one.
Requirements that must meet the object such as: property, furniture, or real estate, etc.
Prices, form and method of payment, currency.
The risks, expenses and responsibilities during the delivery and transportation of the goods, which must be agreed, taking into account that the risk falls on the owner of the merchandise or product.
A clause that must always be agreed is force majeure, fortuitous event, due to the importance that it has in the execution of a contract to define when breaches are intentional and when they are not.
2.1 Economic Contracting in the Furniture Company GEDEMAX
Different types of contracts are made in the Company, among them are employment, service, supply and purchase-sale contracts.
The contract gives the possibility to both parties to agree on all the details related to the commercial operation: rights, obligations, responsibilities are required, terms, conditions and terms are agreed for the fulfillment of all the obligations of the parties. The contract also includes form, means and payment opportunity.
To carry out this work, 35 Purchase Sales contracts signed by GEDEMAX were reviewed during 2008, these represent 25% of the total contracts signed in that period. It was observed, in most cases that contracts comply with the requirements regarding contracting, they include the aspects that a document of this type must technically contain. It was also known that no sales are made in the Company if a contract to protect this commercial operation has not been previously prepared.
Some aspects that were evident during the review carried out:
- In the clause of place and conditions of delivery not always set the times, sites, places of destination and under what circumstance the delivery will be made.
- In the clause that defines the quality of the product, the responsibility assumed by the buyer for having subjected the product to use or practices not compatible with its characteristics must be stated.
- When the forms of payment are defined, it must be specified whether the payments will be divided, the payment instrument to be used, the percentages of surcharge in case of default.
- According to the revised contracts, no other payment instruments are used other than the nominal check (bills of exchange, transfer) that could facilitate the collection of the production sold.
During the exchange made with the specialists of the Directorate of Economy, it was learned that the Furniture Company GEDEMAX is going through a difficult financial situation, for that reason the Financial Statements were requested and the veracity of the information revealed by the specialists was verified.
In the review of the Single Audit File it was also observed that on several occasions the acting auditors reflect the indisciplines in the management of collections and payments given the high amount that exists in accounts receivable.
In this situation, the contracts were resumed and it was detected that the clause of the contracts that is most frequently breached is the one related to the forms and conditions of payment. It defines the credit days granted by the supplier to the customer for the payment of the delivered products, which as a rule should not be more than 30 days. Repeated breaches by customers cause a serious financial situation for the Company.
2.2 Negative effect on the Company's economic result.
The Financial Statements reveal that at the end of the first quarter of 2008 the Company closed with a total of 2,127.5 MP in accounts receivable and of them 1,749.5 MP out of term, with a collection cycle of more than 60 days and the availability of cash in $ 0.18 when the optimal value is between $ 0.30 and $ 0.40, which reveals the impossibility of meeting short-term obligations since the money resulting from its management appears in accounts receivable.
This situation results in:
- Lack of liquidity. Breach of obligations contracted with raw material suppliers. Delay in supplies due to lack of timely cash availability. Need to request credit from the bank for the purchase of raw materials. Interest payment increase. Penalties. Additional expenses associated with collection management.
2.3 Measures taken by the Company.
The Company has adopted a series of measures in order to solve the problem created, among them are:
- The reconciliation of accounts receivable out of term with debtor clients, establishing the payment commitment.
- The negotiation of the debt with the management of the debtor companies.
- The analysis of the financial situation in the Boards of Directors.
- The presentation of each business to the Contracting Committee for analysis before signing the contract.
It could be verified that the company draws up contracts with all its elements before each commercial operation, maintains updated financial information that allows it to carry out analyzes, draw up strategies and take actions to collect its sales.
2.4 Other observations made.
If the company does not change its strategy to solve the problems that arise in relation to accounts receivable, the financial situation may become unsustainable, expenses for interest payments will increase, for interruptions in production processes, for non-compliance with others. customers etc.
The current financial information reflects that the steps taken are not enough, it is evident that the general management of the company has ignored the legal instruments established in the country to apply them in cases like this.
The sub-majority of accounts receivable indicates that there are a total of 40 clients with debts out of term, however, the claims made have only been presented to the debtor companies themselves or their higher body, in no case does a legal claim appear before the corresponding court. Such situation reflects insufficiencies and lack of effectiveness in the steps taken.
The company is executing innumerable actions in order to collect its sales, however, most of these are much more expensive than the application of the current legal instruments. It is not a question of limiting or wasting all the operational actions that are carried out based on the collection, but the results in the management indicate that it is necessary to resort to other ways of solution to solve this problem.
The economic contracts that are drawn up in the company present the insufficiencies detected in the review, already mentioned above, but despite this, the conditions agreed upon in them can guarantee through a legal process before the courts the recovery of the cash that until today it is in the hands of some clients.
Conclusions
1.- The conditions and payment clause that appears in economic contracts are repeatedly violated.
2.- Failure to comply with the mentioned clause causes the difficult financial situation that the Company is going through.
3.- The steps taken by the Company to collect its sales are insufficient.
4.- The contract is not used as legal instruments to claim it before the courts for the breach of the conditions agreed in it.
Bibliography
1. Bayos Sardiñas M. and Benítez Miranda A., Dictionary of Economic Terms.
2. Collective of authors. Contract Law. IT; I Edition.
3. Commercial Code of the Republic of Cuba.
4. Moreno, Finances in Companies, Edited by the Ministry of Higher Education.
5. Pérez G. Luis and Rodríguez F. Félix, Analysis of the Financial Situation of the Company. Editorial Pueblo y Educación 1986.
