The Management of Accounts Receivable and Its Impact on the Performance of Business Organizations in Nigeria
Chapter One
PURPOSE OF THE STUDY
In every business organization, accounts receivable plays an important role in assisting the business in attaining its profitability objectives, particularly in areas related to profits and returns on asset investment.
The basic purpose of this study is to:
- Try to attempt how the company can optimize liquidity position by adequate credit policies, practices, and procedures regarding credit granting, credit limits, and collection of receivables without risking assets through an excessive amount being fielded up in accounts receivables.
- Examine and check the amount of receivables that can be rightly classified as receivables that will materialize in payment.
- Stress the need for cooperation with other credit departments through regular exchange of information. The credit department should also liaise with other departments within the business organization which may be in a position to give information relating to effective accounts receivables management.
- Assessing the profitability of maximizing or optimizing sales or business volume through the use of trade debtors.
- Relate how effective accounts receivable management can assist a business in attaining its predetermined profitability by increasing net returns on asset investment.
- Determine whether inefficient accounts receivable management had led to the winding up of offices in debt collection during the past three years.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
Account Receivables Management
Managing the company’s accounts receivable is an essential component of debtor management for every business. Businesses should organize their rules in a manner that makes it easier for them to monitor their outstanding debts and payments. Because of the fact that companies who do not have a well developed strategy in place for managing their credit operations are more likely to experience big losses as a result of bad debt during a recession, which occurs when customers find it difficult to make payments (Moles, Parriso & Kidwell, 2011). It is noteworthy to note that credit policy and collection period both play essential roles in the management of account receivables. This is because both of these aspects and periods are significantly impacted by credit policies and collection periods. According to Moles et al. (2011), it is essential for companies to consider the credit rating of a client before granting credit to that consumer in order to reduce the risk of incurring bad debts.
Management of Account Receivables Components
An efficient management of account receivables, as part of working capital management, is crucial to the stability and longevity of a business, much as the human heart is essential to the life of any human person (Akinleye & Adeboboye, 2019). As a consequence of this, managing account receivables entails controlling the several components of account receivables, one of which is the average collection time, among other components.
Account Receivables
Account receivables are a representation of the monetary sum that is owed to a company as payment for goods or services that have been provided in the past. Keeping track of an organization’s account receivables allows for the firm to effectively manage client credit, uncollected revenues, and customer loyalty (Munene & Tibbs, 2018). Receivables are all types of credit that have been provided to customers but have not yet been paid back, according to Aminu and Zainudin (2015)’s definition of the term. Customers who owe money to the company for goods or services that the company has already provided but who have not yet paid are referred to as accounts receivable. There is a connection between the words trade debtors and account receivables (Van Hore, 2001). According to Ahmet and Emin (2012), in order for account receivables to be successful and efficient, they must provide a company with the opportunity to increase its profitability by lowering the expenses associated with obtaining capital in the event that there is a liquidity issue. In other words, if there is a problem with the company’s ability to pay its bills on time, the company will have a harder time obtaining the capital it needs.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the management of account receivable and its impact on the performance of business organization in Nigeria. Selected business owners in Uyo, Akwa Ibom state form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the management of account receivable and its impact on the performance of business organization in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing an the management of account receivable and its impact on the performance of business organization in Nigeria
Summary
This study was on the management of account receivable and its impact on the performance of business organization in Nigeria. Three objectives were raised which included: Try to attempt how the company can optimize liquidity position by adequate credit policies, practices and procedures regarding credit granting, credit limits and collection of receivables without risking assets through an excessive amount being field up in accounts receivables, examine and check the amount of receivables that can be rightly classified as receivables which will definitely materialize in payment, Stress the need for co-operations with other credit departments through regular exchange of information. The credit department should also liaise with other departments within the business organization which may be in position to give information relating to effective accounts receivables management, Assessing the profitability of maximizing or optimizing sales or business volume through the use of trade debtors, relate how effective accounts receivable management can assist business to attain its predetermined profitability by increasing net returns on asset investment and determine whether inefficient accounts receivable management had led for the winding up of offices in debt collection during the past three years.. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected business owners in Uyo, Akwa Ibom state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
According to the results of this study, the researchers came to the conclusion that the average collection time does not have a substantial impact on the return on capital employed or profits per share of publicly traded manufacturing companies in Nigeria. In addition, it was further deduced that managing account receivables through the average collection period has the potential to slightly advance the level of firm’s performance both when firm’s performance is proxied in terms of return on capital employed and earnings per share. This was found to be the case when firm’s performance was measured in terms of return on capital employed. When performance was evaluated in terms of return on capital employed, the research concluded that there is a considerable gap between the influence of account receivables management on the success of industrial product enterprises and consumer good firms.
Recommendation
It was advised, on the basis of the logical conclusion, that managers of manufacturing businesses in Nigeria should objectively lower the number of average collection period in an effort to manage account receivables required for the firms’ liquidity, survival, solvency, and profitability.
References
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