Accounts Receivable Management And Financial Performance Of Embu Water And Sanitation Company Limited, Embu County, Kenya

ABSTRACT

Accounts receivable represents money owed to a business in return for goods already delivered or services already rendered. Proper maintenance of accounts receivable helps an organization maintain customer loyalty, track customer credit and uncollected profits. However, many organizations nowadays encounter numerous challenges in regard to their invoicing and accounts receivable process. Embu Water and Sanitation Company limited operate in conditions which limit its ability to maximize revenues because of inadequate infrastructure coverage, dilapidated infrastructure that predispose the company to lose quite a big percentage of supplied water, and the inability to set economic water tariffs. This study sought to determine the effects of accounts receivable management on financial performance of Embu Water and Sanitation Company limited, Embu County, Kenya. This study was guided by the following specific objectives: to examine the effects of inventory turnover period, average payment period, cash conversion period and average collection period on financial performance of Embu Water and Sanitation Company limited, Embu County, Kenya. Theories guiding the study were operational motives theory, transactions cost theory and cash conversion cycle theory. This study adopted descriptive research to test the relationship variables of the study. The study used secondary data which was obtained from the accounts and finance departments. Descriptive statistics and inferential statistical techniques were used to analyze the data and presented in tables. The study established that inventory turnover in days has negative relationship with Return on Equity which means that companies financial performance can be increased by reducing inventory in days. Average collection period and current ratio was found to be significant positive association with Return on Equities, indicating that if time period of debtor’s payment is increased then overall financial performance of Embu Water and Sanitation Company Limited in Embu County, Kenya also improves. The study recommended that Embu Water and Sanitation Company Limited should increase its average collection period, inventory turnover periods and cash conversion period in order to improve their financial performance. The study also recommends that there should be proper inventory management system in the organization to avoid over stock of inventory resulting efficient outcome of investment and engage in better relationship with those suppliers who allow long credit time period and those customers who allow short payment period.