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 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.

CHAPTER ONE

INTRODUCTION

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 receivable. 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”.