Impact Of Accounts Receivable In Business Organisation (a Case Study Of Pz Industries Plc Enugu), Abstract
----recently-with The Present Economic
Predicaments In The Country-many Business Organizations And Individuals Have
Found It Difficult To ...
Recently, with the present economic
predicaments in the country, many business organizations and individuals have
found it difficult to cope with the high cost of living. This is due to
the paucity of the raw cash available in the economy with which they can buy
the necessary goods and services they require on the spot with cash.
Fortunately, with the advancement in the business world, sales and purchases
can be made on credit basis thus alleviating the sufferings and the deprivation
that would have been experienced by individuals, business enterprises and
various governments while making business transactions.
The research topic delve into trying to ascertain the impact of accounts
receivable in business organizations but with particular attention to the PZ
Industries Plc Enugu Branch.
In chapter one, a general background statement about the topic was given.
Also, the statement of the problem of the study, purpose of the study,
importance of study likewise the scope of the study was mentioned. It
also gives some definition on likely terms.
In chapter two, related texts as regards accounts receivable impact on the
performances of business organization were reviewed. Under this chapter,
the definition of accounts receivable as were given by related literature and
the formulation of accounts receivable policy, the determinants of accounts
receivable policy and the measures of promotion accounts receivable were all
examined from related literature.
In chapter three, attempt was made to show the various methods used I gathering
the necessary data for the study likewise stating the statistical tool used.
Chapter four is where the analysis of the findings based on the data collected
was made. It presents and discussed the summary of the report.
Finally chapter five takes care of the discussion of the findings and
conclusion likewise making the necessary recommendations.
TABLE OF CONTENTS
Background to the Study
Statement of Problem
The purpose/Objective of the Study
Scope of the Study
Significance of the Study
Definition of Terms
REVIEW OF LITERATURE
Formulation of Accounts Receivable Policy
Determinant of Accounts Receivable Policy
Measures to Promote Accounts Receivables
Administration of Accounts Receivable
Summary of Related Literature
Area for the Study
Population for the Study
Sample and Sampling Procedure
Instrument for Data Collection
Validity of the Instrument
Reliability of the Instrument
Method of Administration of the Instrument
Method of Data Analysis
DATA PRESENTATION AND RESULTS
Summary of Results
DISCUSSIONS, IMPLICATIONS AND RECOMMENDATIONS
Discussion of Results
Implication of the Results
Suggestions for Further Study
Limitation of the Study
LIST OF TABLE
4.1: Adequacy of liquidity position
of the firm
4.2: Impact of account receivable in
predetermined profitability of the industry
4.3: Possibility of maximizing or
optimizing sales through the use of trade debtors.
4.4: Company’s efficiency in debt
collection during the past three years
1.1 BACKGROUND TO THE STUDY
Prior to the advent of time, civilization,
economic condition, and the business world, the world had known only a cash or
barter economy. However, with development in business world, business are
being transacted on credit basis.
In recent years, many business organizations in Nigeria have experienced
liquidity problems largely because of the effects of high rate of
inflation. This has been necessitated by the various economic measures
introduced in the country ranging from austerity measures introduced in 1982 to
the present Poverty Alleviation Programme (PAP). Because of this, it then
becomes more important than ever to get money promptly from trade debtors for
the day-to-day operation because of uncertainty in the fluctuation of prices.
However, if all trade transactions were to be made on cash basis, the companies
in Nigeria would hardly do well in terms of its sales turnover. Consumers
and middlemen would equally be affected if all purchases made form companies
are always on cash basis. Money (cash) is a scarce commodity which has
wide application in the area of both human and material needs. Thus
bringing about the problem of effective management of available cash resource
through efficient receivable collection management.
At the time of purchase, the consumer and wholesalers may find it difficult to
have ready cash for the payment of their products. The liquidity position
of consumers, particularly wholesalers may make it difficult to purchase all
their needs on cash basis. The seller with sound knowledge of his
customer may be ready to offer his good and services to him, even if he has no
cash for his purchase. Thus, lies the situation facing the seller and the
buyer (debtor and creditor relationship).
Receivables represents claims, usually stated in terms of a fixed amount,
arising from the sale of goods, from the performance of services, from the
lending of funds, or from some other type of transaction which establishes a
relationship whereby one party is indebted to another. This, claims which
result from the sale of goods or services and which are neither supported by a
written note nor secured by specific collateral (ie the creditor has not right
to specific asset in case the debtor fails to pay) are categorized as account
Accounts receivables are sometimes of short-term nature. Short term
receivable can be defined as “claims held against others for money, goods or
services collectible within a year or operating cycle, which ever is longer”.
For financial statement
purposes, receivables could be classified into two broad sections: viz.
Non trade receivables
Trade receivables are amounts owed by customers for goods sold as part of the
normal operation of the business. They are usually the most significant
receivables any organization has. It is usually a written commitment by
others and are normally collectible within one year and sometimes as long as
Non trade or special receivables which arise from a variety of transactions are
written promises to pay at a later date. Examples of non-trade receivable
Advances to officers and employees
Advances to subsidiaries
Deposits to cover potential damages or losses etc.
A firm grants credit in order
to protect its sales from competitors and to attract the potential customers to
its good and services could deteriorate in quantity if not sold within a
specific time period, for example, perishable goods. Trade credit thus creates
accounts receivable or book debts, which the firm is expected to retrieve in
the near future.
This book debt or accounts
receivable arising out of granting credit has three major elements.
The first is the riskiness of
the agreement which might result in debt to the seller. Cash sales are
without risk, but not credit sales as cash is yet to be received.
An equally associated element
is that accounts receivable is based on economic value. To the buyer of
goods and services, the economic value passes immediately at the time of sale,
while the seller expects an equivalent value to be received at a later date.
Another element is the futurity
of the negotiation. This means that payment will be made in the future
time. The customers from whom receivables or book debts have to be
collected in future are called trade debtors or receivables which represents
the firm’s claim or asset.
In view of the above
characteristics, the adoption of an efficient accounts receivable policy
becomes necessary towards the achievement of the overall organizational goals.
1.2 STATEMENT OF THE PROBLEMS
No business concern wants to sell her
goods and services on credit to a customer who will prove unable to pay his or
her accounts when due. The sales department will always want to increase
the sale turnover, hence the need to increase credit sales to customers.
The credit department being the conservative partner worry about the
collectibility of the debts. What occupies the department most is whether
such credits extended will definitely materialize by debtors paying their
debts. If debts resulting from credit are not collected when due, which
department should bear the brunt? Is it the accounts department or sales
department who requested for its approval?
Among the problems are as follows:
position by adequate credit policies, practices and procedure regarding credit
granting, credit limits and collection of receivable.
Effect of accounts receivable to attain its predetermined profitability.
The possibility of maximizing sales through the use of trade debtors.
The company’s level of efficiency in debt collection.
Inefficient accounts receivable that led to the winding up of business
1.3 PURPOSE OF STUDY
In every business organization, accounts
receivable plays an important part in assisting the business attain its
profitability objective, particularly in those areas that relate to net profits
and return on assets investment.
Among the basic purpose of this study are to:
To know the liquidity position by adequate credit policies practices
procedures, regarding credit granting, credit limits and collection of
To know the effect of accounts receivable to attain its predetermined
To know the possibility of maximizing or optimizing sales through the use of
To know how the company’s level of efficiency in debt collection during the
past three years.
To know how inefficient accounts receivables had led to the winding up of
SCOPE OF THE STUDY
This study is to analyze the impact of accounts receivable in business
organizations but with particular reference to PZ Industries Plc at their
branch at Emene in Enugu. This is with the view to determine how the
company has been able to manage her accounts receivable towards achieving her
In the analysis, attention will be focused on the investment in trade (or in
trade receivables) from the stand of granting company. The study covers
ascertain from the company’s accounts or credit department all necessary
information and requirements that help the company in achieving its objective
by granting trade credit or where there are short falls, what factors that
attributes to that are all among the areas to be covered under the study.
Although information as regards accounts receivable or trade debtors were
gathered from company’s accounts or credit department, this study did not go
into making comparisons with those other companies but uses the necessary
information gathered din developing and broadening the view and ideas gathered
from Pz Industries Plc thereby coming up with a substantial idea on the impact
of accounts receivable in business organizations with particular reference to
Pz Industries Plc, Enugu Branch.
1.5 RESEARCH QUESTIONS
The following research questions have been
formulated to guide the investigation:
To what extent are liquidity position by adequate credit policies, practices
and procedures regarding credit granting, credit limits and collection of
To what extent does account receivable affects its predetermined profitability?
To what extent are the possibility of maximizing or optimizing sales through
the use of trade debtors?
To what extent are the company’s efficiency in debt collection during the past
To what extent does inefficient accounts receivable led in the winding up of
1.6 SIGNIFICANCE OF THE STUDY
In recent times, due to changes in business
generally, greater emphasizes have been placed on credit management.
While industrial output are growing, we should also expect receivable to
increase which to some extent has been fostered by highly competitive
conditions. This therefore suggest that perhaps credit is being used as
an instrument by the sales department to generate additional sales
volume. If a firm embarks on a too tight credit policy, there will be
some possible loss of sales while on the other land, there will be a possibly
high bad debt losses if an easy credit policy is maintained.
Therefore since non of the two extremes will be favourable to a company, the
importance of this study is that it will help to strike a balance between too
tight and too open credit policy in order for the firm to achieve their
profitability objective. The study will also highlight the consequences
of not having or operating an efficient account receivable in business
The research work will also expose the management of business organizations to
the effective way to manage the accounts receivable towards the achievement of
the organizational goals.
The study will show how business organizations will tackle various risks
inherent in credit sales but the most essential aspect is the control function
which aims at checking and bringing any delinquent debtors to order in order to
achieve the objective of efficient accounts receivable in business
1.7 DEFINITION OF TERMS
This has been identified as claims held against others for money, goods or
services collectible within a period or operating cycle, which ever is longer.
Receivable represents claims, usually stated in terms of a fixed amounts,
arising from the sale of goods or services rendered. It could be
classified into: trade receivables and non trade receivables.
Trade debtors are those people (customers) owing any organization as a result
of goods/service received from them or credit.
TERMS AND CONDITIONS APPLY
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