Effects of accounts receivable management on the financial performance of construction companies in Rwanda: A case of NPD Ltd.

Abstract

The study focused on the effects of accounts receivable management on the performance of Construction Companies and NPD Ltd was taken as a case study. The study had specific objectives that included; to evaluate the effectiveness of accounts receivable management in NPD Ltd, to ascertain the relationship between accounts receivable management and profitability, and to recommend areas of improvement in as far as accounts receivable management is concerned The researcher reviewed the related literature to come up with full idea of the study conceptual framework, both primary and secondary data in relation to the study were obtained. In collecting primary data, the researcher used questionnaires and interviews from a sample of 30 respondents selected based on a table for determining a sample from a given population by Morgan& Krejcie. For secondary data, the company’s financial statements for the period 2016-2018 were analyzed using financial techniques /ratios. The findings revealed that A/R management in NPD Ltd was not effective especially in terms of ACP and A/R turnover. The recommendations made include: NPD’s collection efforts of accounts Receivables from her credit customers should be improved. This is due to the fact that slow payment by credit customers has been realised within the company. The company should therefore put much more effort in setting up procedures that would speed up collection of Accounts Receivable from debtors. Slow collections have revealed bad image while computing the ACP for the firm and this cuts the firm’s cash potential resulting in liquidity problems and at times leading to bad and doubtful debts. Further, the firm should make critical assessment of the credit seeking customers and credit be given to those who will pay in the credit period given by the company. This is because the company’s debtor’s turnover has been found unsatisfactory resulting from delayed payments from debtors who take much time than the credit period given by the firm. Finally, the study recommended areas for further researches as; Comparing Accounts receivables and Accounts payables management. The impact of credit xvi extension on customer’s purchasing decisions. This will help find out customers’ attitude on cash purchase.