MANAGEMENT OF ACCOUNTS RECEIVABLES AND ITS EFFECT ON FIRMS

PERFORMANCE: A CASE STUDY OF KOSEL LOGISTICS.

BY
Kuffour Selorm Kofi

Isearch Consultancy Services

Research coordinator
www.isearchconsultgh.com

2014

TABLE OF CONTENTS
CHAPTER ONE 1
INTRODUCTION. 1
1.0

Background of the study. 1

1.1

Statement of the problem. 3

1.2

Objective of the study .4

1.2.1

Specific objectives. 4

1.3

Research Questions. . 5

1.4

Significance of the Study. 5

1.5

Scope and Limitations of the Study.. 6

1.6

Definition of Terms7

1.7

Organisation of the study. 8

CHAPTER TWO.. 9
LITERATURE REVIEW. 9
2.1 Introduction. 9
2.2 Accounts Receivables.. 9
2.3 Justification for Investment in Account Receivables 10
2.4. Account Receivables Management Policy 11
2.5 Performance and Profitability of an Organisation 14
2.6 Relationship between Accounts Receivables Management and Profitability 15
2.7 Conclusion... 16
CHAPTER THREE... 17
METHODOLOGY 17
3.1 Introduction. 17

3.2 Research design... 17

3.3 Study population.. 17
3.4 Sample size and sample procedure. 18
3.5 Sources of data.18
3.6 Data collection methods and techniques. 18
3.7 Data presentation and analysis. 19
CHAPTER FOUR. 20
DISCUSSION OF FINDINGS. 20
4.0 Introduction. 20
4.1 Demography.20
4.2 Accounts receivables management policy used by KOSEL ..25
4.4 key factors about the accounts receivable management used at KOSEL 32
4.5 Accounts receivables management and performance of KOSEL 41
4.6 Discussions.. 50
CHAPTER FIVE... 53
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 53
5.0 Introduction. 53
5.1 Summary.. 53
5.2 Conclusion... 55
5.3 Recommendations57
REFERENCES. 58

ABSTRACT
Accounts receivables refer to a legally enforceable claim for payment from a business by a
company for services rendered or for goods supplied to the business. According to Kakuru
(2000), when a company renders a service or sells its goods and does not receive cash for it, the
company is said to have granted trade credit to clients. The general objective of the study was to
identify the effect of management of accounts receivables on the performance of KOSEL
Logistics. The study adopted a descriptive cross-sectional survey in which questionnaires were
given to a selected sample of respondents from a target population of the management, staff and
the customers of KOSEL. Purposive sampling was used to select ten (10) management staff and
simple random sampling was used to select forty (40) employees. Also, simple random sampling
was adopted in selecting thirty (50) customers of KOSEL. The data collected was processed
using SPSS. The results of the study revealed that majority of the customers ask for credit from
KOSEL and they do not need to present any collateral to qualify for a credit. Majority of the
customers of KOSEL said they have defaulted in the payment of their credit obligations. The
findings of the study also shows that KOSEL does not undertake formal credit investigation
before granting credit to their customers and customers bank reference are not checked. The
study revealed that discount payment for early payment of debt increases revenue. The findings
of the study revealed that the efficient management of accounts receivable increases sales,
reduces cost associated with bad debt, and also increases the profitability of the company. The
failure of customers to pay back their credit was found to affect profitability. It was also observed
that KOSEL usually faces liquidity problems. The study recommended that KOSEL must have a
receivables management policy that will assist in selecting customers for credits since this can
help in the selection of customers who will be able to pay their credit on time.

1.2

General Objective of the study

The general objective of the study is to identify the effect of management of accounts receivables
on the performance of limited liability companies using KOSEL as a case study.
1.2.1

Specific objectives

To achieve the general objective of this study, the following specific objectives are made use of;
i.

To identify the accounts receivables management policy used by KOSEL.

ii.

To determine the effect of accounts receivables management on the performance of

KOSEL.
iii.

To establish if there is a relationship between accounts receivables management and

performance of an organisation.

1.3

Research Questions.

i.

What accounts receivables management policy is applied by KOSEL Ghana limited?

ii.

What is the effect of accounts receivables management on the performance of KOSEL

Ghana limited?
iii.

What is the relationship between accounts receivables management and performance of

KOSEL Ghana limited?

1.4

Significance of the Study

The result of the study will assist the management of KOSEL Ghana Limited to identify the
effectiveness of accounts receivable management policy instituted by the company and will serve
as a road map in improving the policy. The findings will also assist management to better access
the credit worthiness of potential customers or clients before transactions. It is also expected that
the findings of the study will highlight the benefits of formulation and implementation of better
credit policies in organisations and the adverse effects of an inefficient management of account
receivables on the performance company. The study will add to the wealth of knowledge in this
field and will provide literature for review by researchers and students who wish to conduct
further research in the same field of study.

1.6

Definition of Terms

Trade Credit: selling of goods or rendering services to Customers or clients on the condition that
they pay in the near future
Accounts receivables: refers to an amount of money to be received from customers in payment
for goods and services provided to them on credit terms.
Credit policy: The criterion on which an amount of credit to be given out is based on.
Liquidity: The ease and speed which current asset are converted into cash to meet current
liabilities.
Bad debts: a debt that cannot be recovered

1.7 Organisation of the study

Chapter one - Introduces the research study, providing the background to the study, statement of
the problem, objectives and research questions, the significance of the study, definition of terms,
scope and limitation of the study.

Chapter two - A review of literature is presented. An overall review of the existing literature on
the subject from journals, books and articles are examined and discussed.
Chapter three - Presents the methodology used for the research. The chapter also presents the
research design, population, sample and sampling procedure, instrument, data collection
procedure and data analysis.
Chapter four - Examines and discusses the research results and findings. The chapter focuses on
a discussion of the findings in relation to the results obtained by other researchers on similar
topics.
Chapter five - Presents the summary, conclusion, recommendations, and direction for future
research.

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