IMPACT OF RECEIVABLE ACCOUNTS IN BUSINESS ORGANIZATION
ABSTRACT
With the country’s current economic predicaments, many business organizations and individuals have found it difficult to cope with the high cost of living. This is due to a scarcity of raw cash in the economy with which they can purchase the necessary goods and services on the spot with cash.
Fortunately, with advancements in the business world, sales and purchases can now be made on credit, alleviating the sufferings and deprivation that individuals, business enterprises, and various governments would have faced when conducting business transactions.
The research topic delves into attempting to determine the impact of accounts receivable in business organizations, with a focus on the PZ Industries Plc Enugu Branch in particular.
A general background statement about the topic was provided in chapter one. The statement of the problem of the study, the purpose of the study, the importance of the study, and the scope of the study were also mentioned. It also defines some commonly used terms.
In chapter two, related texts concerning the impact of accounts receivable on the performance of business organizations were reviewed. This chapter examined related literature for the definition of accounts receivable, the formulation of accounts receivable policy, the determinants of accounts receivable policy, and the measures of promotion accounts receivable.
In chapter three, an attempt was made to demonstrate the various methods used in collecting the necessary data for the study, as well as the statistical tool used.
The fourth chapter contains an analysis of the findings based on the data collected. It presents and discusses the report’s summary.
Finally, chapter five discusses the findings and conclusions, as well as making the necessary recommendations.
TABLE OF CONTENTS
INTRODUCTION
CHAPTER ONE
1.1 Historical Context of the Research
1.2 Statement of the Problem
1.3 The Purpose/Objective of the Research
1.4 Scope of the Investigation
1.5 Investigational Questions
1.6 The Importance of the Research
1.7 Terminology Definition
REVIEW OF LITERATURE IN CHAPTER TWO
2.1 Development of an Accounts Receivable Policy
2.2 Policy Determinant for Accounts Receivables
2.3 Promotional Measures for Accounts Receivable
2.4 Accounts Receivable Administration
2.5 Recommendations for Further Reading
METHODOLOGY IN CHAPTER THREE
3.1 Methodology of Research
3.2 Research Subject Area
3.3 Sample Size for the Study
3.4 Procedure for Taking Samples and Sampling
3.5 Instrument for Data Collection
3.6 Applicability of the Instrument
3.7 The Reliability of the Instrument
3.8 Administration Method of the Instrument
3.9 Data Analysis Methodology
CHAPTER FOUR DATA PRESENTATION AND OUTCOMES
4.1 Executive Summary of Findings
CHAPTER FIVE
DEBATE, IMPLICATIONS, AND RECOMMENDATIONS
5.1 Results Analysis and Discussion
5.2 Discussion and Conclusions
5.3 The Implications of the Findings
5.4 Suggestions for Improvement
5.5 Suggestions for Additional Research
5.6 Study Flaws
References
Appendices
TABLE LIST Table 4.1: The firm’s liquidity position is adequate.
Table 4.2: The impact of accounts receivable on the industry’s predetermined profitability.
Table 4.3: The possibility of increasing or optimizing sales by using trade debtors.
Table 4.4 shows the company’s debt collection efficiency over the last three years.
CHAPTER ONE
INTRODUCTION
1.1 INTRODUCTION TO THE STUDY
The world had only known a cash or barter economy prior to the advent of time, civilization, economic condition, and the business world. However, as the business world has evolved, more and more transactions are being conducted on a credit basis.
Many Nigerian businesses have faced liquidity issues in recent years, owing largely to the effects of high inflation rates. This has been made necessary by the various economic measures implemented in the country, ranging from austerity measures implemented in 1982 to the current Poverty Alleviation Programme (PAP). Because of the uncertainty in price fluctuations, it is now more important than ever to obtain funds from trade debtors on a timely basis for day-to-day operations.
However, if all trade transactions were conducted in cash, Nigerian businesses would struggle to meet their sales targets. Consumers and middlemen would both suffer if all company purchases were always made in cash. Money (cash) is a scarce commodity with numerous applications in both human and material needs. As a result, the problem of effective cash resource management through efficient receivable collection management arises.
Consumers and wholesalers may find it difficult to have ready cash for payment of their products at the time of purchase. Consumers’ liquidity positions, particularly wholesalers’, may make it difficult to purchase all of their needs on a cash basis. A seller who knows his customer well may be willing to offer his goods and services to him even if he lacks the necessary cash. This is the situation that the seller and buyer are in (debtor and creditor relationship).
Receivables are claims, usually stated in terms of a fixed amount, that arise from the sale of goods, the performance of services, the lending of funds, or some other type of transaction that establishes a relationship in which one party is indebted to another. Account receivable refers to claims arising from the sale of goods or services that are not supported by a written note or secured by specific collateral (i.e. the creditor has no right to specific asset if the debtor fails to pay).
Accounts receivable are sometimes of a short duration. Short-term receivables are “claims against others for money, goods, or services collectible within a year or operating cycle, whichever is longer.”
Receivables can be divided into two broad categories for financial statement purposes: viz.
1. Commercial receivables
2. Non-commercial receivables
Trade receivables are amounts owed by customers for goods sold in the course of normal business operations. They are typically the most important receivables in any organization. It is usually a written commitment by others and is usually collectible within one year, but can take up to five years.
Non-trade or special receivables are written promises to pay at a later date that arise from a variety of transactions. Non-trade receivables include:
a. Officers and employees are given advances.
b. Cash advances to subsidiaries
c. Deposits to cover potential damages or losses, and so on.
A company may grant credit to protect its sales from competitors and to attract potential customers to its goods and services, which may deteriorate in quantity if not sold within a certain time period, such as perishable goods. Accounts receivable or book debts are thus created as a result of trade credit, which the firm expects to recover in the near future.
This book debt or accounts receivable resulting from credit extension has three major components.
The first is the agreement’s riskiness, which may result in debt to the seller. Cash sales are risk-free, but credit sales are not because the money has not yet been received.
Accounts receivable are based on economic value, which is also related. The economic value of goods and services passes immediately to the buyer at the time of sale, whereas the seller expects an equivalent value to be received at a later date.
Another consideration is the negotiation’s long-term viability. This indicates that payment will be made in the future. Customers from whom receivables or book debts must be collected in the future are referred to as trade debtors or receivables, and they represent the firm’s claim or asset.
Given the foregoing characteristics, implementing an efficient accounts receivable policy becomes critical to achieving the overall organizational goals.
1.2 STATEMENT OF THE PROBLEM
No business wants to sell goods and services on credit to a customer who will be unable to pay his or her accounts when they become due. The sales department will always want to increase sales turnover, which is why credit sales to customers must be increased.
The credit department, as the more conservative partner, is concerned about debt collectibility. What the department is most concerned about is whether the credits extended will be paid back by debtors. Which department should bear the brunt if credit-related debts are not collected on time? Is it the accounts department or the sales department that requested it?
Among the issues are the following:
1 Liquidity position ensured by adequate credit policies, practices, and procedures governing credit granting, credit limits, and receivable collection.
2. The effect of accounts receivable on achieving the predetermined profitability.
3. The possibility of increasing sales by utilizing trade debtors.
4. The company’s level of debt collection efficiency.
5. Inefficient accounts receivable, which led to the company’s demise
1.3 OBJECTIVE OF STUDY
Accounts receivable play an important role in assisting a business achieve its profitability goal, particularly in areas such as net profits and return on assets invested.
Among the primary goals of this research are:
1. To understand the liquidity position by implementing adequate credit policies and procedures for credit granting, credit limits, and receivable collection.
2. To understand the impact of accounts receivable on achieving the predetermined profitability.
3. To be aware of the possibility of increasing or optimizing sales by utilizing trade debtors.
4. To learn about the company’s debt collection efficiency over the last three years.
5. To learn how inefficient accounts receivable led to the company’s demise.
1.4 THE STUDY’S OBJECTIVE
This study will examine the impact of accounts receivable in business organizations, with a focus on PZ Industries Plc’s Emene branch in Enugu. This is done to determine how the company has managed her accounts receivable in order to achieve her goals.
The focus of the analysis will be on the granting company’s investment in trade (or in trade receivables). The study covers determining all necessary information and requirements from the company’s accounts or credit department that help the company achieve its goal by granting trade credit or where there are shortfalls, what factors that attribute to that are all among the areas to be covered under the study.
Although information on accounts receivable or trade debtors was gathered from the company’s accounts or credit department, this study did not make comparisons with other companies, but instead used the necessary information gathered in developing and broadening the view and ideas gathered from Pz Industries Plc, resulting in a substantial idea on the impact of accounts receivable in business organizations with specific reference to Pz Industries.
1.5 QUESTIONS FOR RESEARCH
To guide the investigation, the following research questions have been developed:
1. To what extent are adequate credit policies, practices, and procedures regarding credit granting, credit limits, and receivable collection used to improve liquidity?
2. To what extent does account receivable affect the company’s predetermined profitability?
3. To what extent is it possible to maximize or optimize sales through the use of trade debtors?
4. How effective has the company been in debt collection over the last three years?
5. To what extent has inefficient accounts receivable resulted in the closure of a business?
1.6 THE IMPORTANCE OF THE STUDY
Credit management has received increased attention in recent years as a result of changes in business in general. While industrial output is increasing, we should also expect receivables to rise, which has been aided in part by highly competitive conditions.
This suggests that credit is being used as a tool by the sales department to generate additional sales volume. If a company adopts an overly strict credit policy, it may lose some sales; on the other hand, if an easy credit policy is maintained, it may incur high bad debt losses.
Because neither extreme will be advantageous to a company, the significance of this study is that it will assist in striking a balance between too tight and too open credit policies in order for the firm to achieve their profitability objective. The study will also highlight the consequences of failing to have or maintain an efficient account receivable system in business organizations.
The research work will also expose business organization management to the most effective way to manage accounts receivable in order to achieve organizational goals.
The study will demonstrate how business organizations will deal with the various risks inherent in credit sales, but the most important aspect is the control function, which aims to check and bring any delinquent debtors to order in order to achieve the goal of efficient accounts receivable in business organizations.
1.7 DEFINITIONS OF TERMS
1. Accounts receivable: These are defined as claims held against others for money, goods, or services that are collectible within a period or operating cycle, whichever is longer.
2. Receivables are claims that are usually stated in terms of fixed amounts and arise from the sale of goods or services rendered. It can be divided into two categories: trade receivables and non-trade receivables.
3. Trade debtors are individuals (customers) who owe any organization for goods/services received from them or credit.
Do You Have New or Fresh Topic? Send Us Your Topic
IMPACT OF RECEIVABLE ACCOUNTS IN BUSINESS ORGANIZATION