Accounts receivables management and financial performance of manufacturing firms in Nakuru county, Kenya
Accounts receivable of a firm is a legally enforceable claim for payment from a business to its customers / clients for goods supplied and / or services rendered in execution of the customers order. On the balance sheet, it is reported as a current asset and is considered part of an organization’s working capital. The foundation behind accounts receivable is a firm’s policies and procedures for sales. A system must be in place to track accounts receivable. This should include balance forwards, listing of all open invoices and generation of monthly statements to customers. An aging of receivables should be used to collect overdue accounts. Many organizations today are faced with the problem of having huge accumulated balances owing to accounts receivables which are sometimes written off and thus interfering with the organizations operations. The purpose of the study is to establish how Accounts receivable management tries to minimize the amounts of money tied up in form of accounts receivables and thus takes the organization back to its original set goals. This study describes target population comprising of all the manufacturing firms in Nakuru municipality which is the sample and census will be employed as the population is less than 30. There are 25 manufacturing companies within the municipality. The reason for focusing on this sector is because it constitutes a larger part of the manufacturing sector which contributes a substantial percentage of output to the gross domestic product of Kenya. The period between 2008 and 2013 is sufficient enough to enable appropriate assessment of the accounts receivable management by the manufacturing firms in the municipality. The accounts receivable will be measured using ratios such as turnover ratio which is an accounting measure used to quantify firms effectiveness in extending credit as well as collecting debts. This ratio is an activity ratio, measuring how efficiently a firm uses its assets. Measures such as days sales outstanding (DSO) which is a measure of the average number of days a company takes to collect revenue after a sale has been made will also be looked into to help in the management of the accounts receivable. A/R at year end as a percentage of total sales ratio computed by dividing the fiscal year end A/R balances by fiscal year net sales will also be used, accounts receivable aging schedule which is a periodic report used to determine the priorities of collection activities will also be helpful in the management of the accounts receivables. Bad debt expense as a percentage of total sales ratio computed by dividing year end bad debts expenses by net sales. The study will be based on theories such as trade-off theory and pecking order theory. Descriptive survey research design will be adopted.. Therefore, the study will employ a purposive sampling, thus judgment sampling to be particular. The main source of information will be the secondary. Data will be analyzed using regression analysis method in a way to form a trend analysis enabling the determination of the impact of debt to on the performance of the firms.