INTRODUCTION This chapter introduces the background to the study, which in turn brings out the justification for carrying out the study in the particular area chosen for the case study. The chapter moves on to state the statement of the problem as well as the objectives to be achieved by the carrying out of the study. The delimitation, limitations, and assumptions to be assumed when carrying out the study will be stated. The importance of carrying out the study will be explained.
The chapter closes by defining key terms of the research and gives a brief overview of the organisation of the research.
A summary of the chapter will be provided. 2. BACKGROUND TO THE PROBLEM In recent years companies have closed due to a number of reasons. Topping on list reasons is the failure to manage the working capital component particularly debtors. The issue of liquidity has been the cause of many corporate failures. MIDLANDS STATE UNIVERSITY (M. S. U) is facing a similar problem.
The company has a ballooning figure of debtors in its accounts. The problem arising out of the monies tied up in debtors is that the company is experiencing cash-flow problems. The failure to finance day-to-day operations is a cause of concern.
Delays in payment of both employees’ salaries and creditors are a common phenomenon in the company. 1. 3 STATEMENT OF THE PROBLEM Is there debtors control system and revenue collection system at MIDLANDS STATE UNIVERSITY? 1. 4 SUB PROBLEMS Is there a revenue collection policy? Is there debtor’s control? Is there debt collection? 1. 5 RESEARCH OBJECTIVES ? To establish the debtors control system being used by M. S. U ORGANISATION ? To evaluate the current debtors control system. ? To make appropriate recommendations that improves the debtors control system. . 6 DELIMITATION The research will be conducted in the bursary department of the MIDLANDS STATE UNIVERSITY. 1. 7 LIMITATIONS OF THE STUDY Limited Financial Resources:, Interviewing all people in the finance department as well as the assembling of the final copy was a potential limiting factor. Efforts were made to secure funds in advance for all the requirements for the project. Time: Time allocated for the research was not enough to cover all sections and interview everyone. Sampling was used to select people. Confidentiality of information:
Some respondents did not fully disclose sensitive information as required for the project. The researcher assured all the respondents by way of written documents on that the information they provide would be treated with strict confidentiality and will be used solely for this project. 1. 8 ASSUMPTIONS ? Personnel in the bursary department are qualified and well experienced to handle all matters relating to debtors control and revenue collection. ? Debtors are paying on time. ? All resources required for credit control are available. ? Information obtained from the department is correct 1. IMPORTANCE OF THE STUDY 1) The research is a requirement of the Bachelor of Commerce Honours Accounting degree the researcher is undertaking. 2) A successful completion of the study will help the company used as a case study. The recommendations made from the research findings will become the basis for the taking of corrective measures to improve operations. 3) The research will provide an important starting point to other researchers who might want to research in the areas of credit control and debt management in future. 1. 10 SUMMARY: The problem prompting the study was introduced and the background given.
The statement of the problem was highlighted and objectives stated. The delimitation and the possible limiting factors have been highlighted including the organisation of the study. CHAPTER 2 LITERATURE REVIEW 2. 0 INTRODUCTION This chapter involves the documentation of a comprehensive review of published and unpublished work from secondary sources of data in the areas of specific interest to the research. The chapter’s outline is guided by the research objectives. It starts by looking at the revenue collection policy and debt creation procedures that are the key elements, which establishes the availability of a debtors control system.
It then moves on to the evaluation objective where it looks at internal controls that should be in place to monitor and ensure that the debtors control system in place is both efficient and effective. It concludes the chapter by looking at debt collection, which is the final aspect in debt management. The chapter is concluded by a list of various methods available to customers for settling debts. 2. 1 DEBTORS According to Sangster (2000), a debtor ‘Is an accounting term that is given to a person or organisation that owes a consideration to a business for goods supplied or services rendered. Pelkowtz (1986) seconds the above definition. He too believes that ‘a debtor is a person that owes money to another for products supplied. ’ He asserts that ‘debtors arise when a business sells on credit to its clients. ’ Credit sales increase total sales hence increase total income. However though credit sales increase total income, according to Atrill and McLaney (2004) “selling on credit results in additional costs being incurred by a business, these costs include credit administration costs, bad debts and opportunities foregone in using the funds for more profitable purposes. They further state, “These costs must be weighed against the benefits of increased sales resulting from the opportunity for customers to delay payment. ” Van Horne (1978) supports this view. He argues, “For any credit to be extended to a client, the benefits to be derived from the credit offered must be greater than the costs of giving out the credit”. Since costs are attached to the issuing out of credit, firms must therefore have a good Credit policy that guides the issuing and management of debt. 2. 3 CREDIT POLICY:
According to Flynn (et-al) (2004) “a credit policy reflects a firm’s general approach to the granting of credit, requiring decision relating in particular to the level of credit and the offering of cash discounts. ” The Cronje and Du-Toit, provides a clearer definition of a credit policy. They assert that “a credit policy contains directions according to which it is decided whether credit should be granted to a client and, if so, how much and for how long. ” The two definitions are simply trying to show that a credit policy acts as a guide on how credit should be extended and handled.
A credit policy should strive to maintain an optimal credit policy, one that maximises profits in relation to the relevant risks of issuing out credit. 2. 3. 1 CREDIT POLICY EVALUATION According to Ross (2000) “granting credit only makes sense when the NPV of the firm is positive. ” In evaluating credit policy, that is assessing whether extending credit will result in a positive NPV (increase in net worth of the business) for the firm, there are 5 basic factors to consider: ? Revenue effects – A higher price may be charged if credit is granted hence quantity sold may increase. As a result total revenue will increase.
This results in the firm gaining a positive NPV. ? Costs effects – Although the firm may experience delayed revenues, it still incurs the costs of sales immediately. ? The cost of debt – When the firm grants credit, it must arrange to finance the resulting receivables. As a result, the firm’s cost of short-term borrowing is a factor in the decision to grant credit. ? The probability of non-payment – A certain percentage of the credit buyers will not pay. ? The cash discount – Some of the customers may choose to pay earlier to take advantage of the discount. This creates a positive NPV.
If the credit policy terms and standards result in an overall increase in the NPV of the firm, then the business should sell on credit and should define the criteria for selecting potential customers as stated by the credit policy. 2. 3. 2. CRITERIA FOR DETERMINING WHO TO GETS CREDIT Cronje (et-al) (1998) states that ‘a credit policy involves an evaluation of the credit worthiness of debtors, based on realistic credit standards’. Lawrence Gitman who defines credit policy selection as a process that involves an application of techniques for determining which customer should receive credit supports this view.
He goes on to say that the process goes on to evaluate customer’s credit worthiness and comparing it to the firms credit standards. Credit standards according to Van Horne (1995) “are the minimum requirements for extending credit. ” Schall (2002) supports the definition by Van Horne (1995). In his own words “credit standards is the criterion the organisation uses to screen credit applicants. ” He clearly states that “for applicants to qualify for credit he or she should meet the standards set by the firm. ” Atril and McLaney (2004) underscore the above definitions.
They moves a step further to state that “a credit policy defines the credit standards the firm uses. ” According to them “other contents of the credit policy include the following: ? Criteria for selecting customers eligible for credit; ? The length of the credit to be offered; ? Whether discounts will be offered for prompt payment; ? The collection polices to be adopted. ” 2. 3. 3 CREDIT INFORMATION EVALUATION A number of techniques can be used to select customers a business can offer credit. One co these techniques according to Gitman (2000) and Atril and McLaney (2004) is the 5Cs model.
This model evaluates customers assessing their ability to pay. It involves the attainment of information on the applicant, analysing this information to determine the applicant’s credit worthiness and making the decision on whether to extend credit or not. In assessing the customer’s potential to pay, the following variables are considered: Character, Capacity, Conditions, Capital & Collateral conditions. 1) Character – The willingness to pay will depend on the honesty and integrity of the individual with whom the business will be dealing with.
The credit department has to seek recommendations from other persons who have dealt with the customer before. Some potential customers may be spending thrift and hence if given goods or services on credit the company would suffer bad debt losses. It is frequently submitted that this moral issue is the most important factor in assessing credit worthiness of a customer. 2) Capacity – Gitman (2000) assets that “capacity refers to the applicant’s ability to meet financial obligations. ” The payment record to date of the potential customer should be assessed.
Organisations can collect information of the financial position and credit standing of a business and individuals from credit reporting organisations. In our Zimbabwean situation the most widely known organisation of this type is Dunn & Bradstreet in Harare. Information about the applicant’s ability to meet financial obligations can also be obtained from other institutions where the applicant is a debtor like account stores like Edgars and were the debtor pays monthly rentals like municipal water bills. 3) Capital: Atrial (et-al) (2004) assets that “the customer must be financially sound before any credit is extended. On this point Gitman (2004) states that “suppliers should consider the assets owned by the potential customer so that they can act as security, meaning these will be attached in the event that customer fails to meet his obligation of repaying the credit extended to him. ” Credit managers must evaluate chances of non-payment and estimate the benefits of extending credit. Sources of information assessing customers credit standing and financial position includes bank references, trade references and credit bureau, like Dunn & Bradstreet. ) Conditions: The state of the industry the customer operates and the general economic condition of the particular region or country may have an important influence on the ability of a customer to pay the amounts outstanding on the due date. 5) Collateral: Gitman (2000) strongly believes that the amount of assets the applicant has available for use in securing the credit is important the larger the amount of assets, the greater the chance that the firm will recover its funds if the applicant defaults. Van Horne (1995) and Ross (1998) stated some information that can be used to assess credit worthiness of a client could be sourced from: ?
Financial statements – E. g. balance sheet and income statements. Financial ratios can be used as a basis for extending or refusing credit. ? Credit reports on the customer’s payment history with other firms. ? Banks checking– provide information on the creditworthiness of other firms. This involves the requesting information from the applicants Bank about cash balance, loan accommodation. ? Trade references-credit information is frequently exchanged among firms selling the same customer.
The above information becomes the basis for choosing potential customers using the judgmental method. The above techniques 5Cs and the other by Van Horne(1995) do not yield the specific accept or reject decision. They only assess the ability to pay back. The next step is to choose appropriate customers to extend credit. 2. 3. 4 CREDIT ANALYSIS Having collected credit information, the firm must make a credit analysis of the applicant. Ross defined credit analysis “as the process of deciding whether or not to extend credit to a particular customer. Analysts are particularly interested in applicant’s liquidity and ability to pay bills on time. When analysing large account, Van Horne (1995) states that “these are more risky and therefore the credit analysts should obtain more information about the client. ” 2. 3. 5 CREDIT SCORING According to Gitman (2000) “Credit scoring applies statistical weights for key financial and credit characteristics to predict weather a stated credit applicant will pay the requested credit in a timely fashion. ” According to Schall (2002), “it measures the probability of default when granting consumer credit. Scoring indicates an objective, quantitative way of assessing who is likely to be a high-risk client and who is not. Dainsky (et-al) (1995) states, “the firm may ask customers to fill in a pre-designed form. The form will contain questions on employment salary, marital status, length of employment, physical address and immovable property owned by the customer etc. Each of the responses by customers is given a pre-determined score.
The credit manager makes a scorecard that meets his objectives and needs, and calculates the numerical value or score for each credit application. Scoring helps increases business and profits as a result of accurately identifying the combinations of critical characteristics of their client’s profile, which increases risk to an unacceptable level. The management of these factors helps reduce risk the firm faces and propels it towards profitability The risk factors are combined statistically into a model and numerical values are assigned to them to create a means for measuring new applicants. Upon selection, the customer is spelled out the credit terms, which are normally stated in the agreement form or contract. . 3. 6 CREDIT TERMS These according to Gitman (2000) “are the terms of sale for customers who have been extended credit by the firm. ” Credit terms can be 2/10 net 30, which means a customer is offered 2% discount if he pays within 10 days but can pay anytime up to 30 days. DISCOUNTS; Frankwood and Sangster (2000) assets that “a discount is a reduction in price that is offered to a customer for cash payment within a specified period”. Organisations use discounts to encourage early payment of outstanding amounts.
A discount policy is arrived at after balancing the cost of the discount against the benefits of early payment. Such a policy according Schall (2002) “produce two benefits, firstly it attracts customers who take discounts as price reductions and secondly the discount results in a reduction in the average collection period, since some of the established customers will pay more promptly in order to take advantage of discounts. ” This increases the sales of the business at the same time enhancing its image. The problem of bad debts is eliminated in cases where discounts are offered. . 3. 7 CREDIT PERIOD VAN HORNE (1995) defines ‘credit period as the total length of time over which credit is extended to a customer to pay a bill’, while Harold (1998) defines it as “the length of time buyers are given to pay for their purchases. ” The credit period may be as short as 7 days or as long as 24 months. The buyer inventory period and operating cycle also influences the length of the credit period. The shorter the buyer’s inventory period and operating cycle the shorter the credit period. Credit terms of a firm affects its sales e. g. f demand for a firm’s product depends on its terms, then it should consider lengthening the credit period in order to stimulate demand and increase sales. LENGTH CAN ALSO BE INFLUENCED BY: According to Bass (1991), credit period can also be influenced by the below stated factors. ? Consumer demand – increasing the length of the payment period can increase demand. ? Cost, profitability and standardisation – the profitability of the sales expected should be compared with the required rate of return on additional investment in receivables as well as considering bad debt losses.
If bad debts are forecasted then length should be short. If cost of extending credit is expected to be high then period should be short, if cost is low then extending is necessary. ? Credit risk – This is the possibility that the firm will not be able to collect all that is owed to it by its customers. The lower the risky the longer the period however the higher the risky the shorter the period ? Size of the account – huge accounts take a longer time to settle and therefore longer periods should be extended.
Small accounts shorter period. ? Competition – To attract more customers, the firm can increase the length of the payment period. ? Consumer type – the period of credit in most cases is set by the convention of trade and very little flexibility is afforded to individual businesses. ? Perishability and collateral value – These have rapid turnover and hence the credit period should be short. All the above should be considered in coming up with the appropriate period. Credit will then be extended. 2. 3. 8 AN OPTIMAL CREDIT CONTROL POLICY
A credit policy should aim to attain an optimal position. An optimal credit policy is one that maximises profits in relation to the relevant risks of issuing out credit. VAN HORNE (1995); purports that “optimal investment in accounts receivables is determined by comparing benefits to be derived from a particular level of investment in debtors with the costs of maintaining that level”. 2. 2. 0 INTERNAL CONTROLS According to Dainsky (et-al) (1997) “internal controls are procedures and measures used by a business to protect its assets from theft, losses and misuse’.
Hudson (2000) supports the above definition. ” He asserts that ’Internal control, encompass the whole system of controls, financial and otherwise established by management in order to carry on business of the enterprise in an orderly and efficient manner, and ensure adherence to management policies, safeguard assets and secure as far as possible the completeness and accuracy of the records. ” He goes on to state that, “Control activities occur throughout the organisation, at all levels, and in all functions.
They include a range of activities that include approvals, authorisations, verifications, reconciliation’s, reviews of operating performance, security of assets and segregation of duties. ” Control activities usually involve two elements: a policy establishing what should be done and procedures to affect the policy. All policies must be implemented thoughtfully, consistently and consciously. 2. 2. 1 IMPORTANCE OF DEBT MANAGEMENT Debtor’s account represents a considerable portion of the investment in current assets and therefore demands efficient management. According to Schall (2002) “capital is sometimes locked up in the debtors figure”.
He moves on to state “such cash is used to finance other peoples businesses instead of the one for which it was intended. ” Effective management of accounts receivables is therefore important to prevent the financing of other people’s businesses. Management of accounts receivables according to CORREIRA et-al) (1983), “starts with the decision to grant credit. ” There is need for an effective control system over debtors that monitors the application of credit policy, otherwise receivables may build up to excessive levels leading to bad debts and as a result cash flow levels declines. . 2. 2 ELEMENTS OF AN EFFECTIVE DEBTORS CONTROL SYSTEM According to A. H. MILLICHAMP these are some of the desirable elements: ? Personnel: Personnel should be competent and motivated. Measures to ensure that personnel work effectively for the benefit of the system include appropriate remuneration and promotion, career development prospects, selection of people with appropriate skills, knowledge, personal characteristics and training to improve specialist skills.
The organisation should established lines of authority, written job descriptions and procedure manuals to clarify responsibility for personnel. ? Authorisation: Are controls in the recording function, which check that all transactions have been approved, correctly recorded and accurately processed. There should be a clear framework for the authorisation of all monetary transaction be it creating a new account for a debtor, writing it off and the general authorisation as laid down in the procedure’s manual. CHAPTER 3 RESEACH METHODOLOGY 3. 1 INTRODUCTION
This chapter focuses on the research methods, sampling designs and research instruments used to collect data and the procedures for the collection of the data. It aims to explain the designs used to gather and analyse data pertaining to MSU. An in depth outline of the data collection procedures will be discussed including how the presentation, interpretation and analysis of the data is going to be done. 3. 2 RESEARCH DESIGN HAGEDORN (1976) defined a Research Design ‘as a way of obtaining the objective information in a logical manner in which individuals are compared and analysed to make interpretations from the data. The descriptive design was specifically chosen for the purpose of this study as it focuses on the systemic description and exposure of the salient features of the research. The case study method of descriptive design was used as this applies to a specific case, in this research; the case is the Bursary department of M. S. U. The main variables to be assessed were the credit policy, the availability of debt controls and Debt collection. 3. 3 POPULATION These are the total elements under study. For this study, the target population was the Finance department, (accounts employees at M.
S. U. The population is shown in a table below: | | | | |FINANCE DEPARTMENT (SECTIONS) |NUMBER OF EMPLOYEES |PERCENTAGE | | | | | |ACCOUNTING AND FINANCE |9 |47. % | | | | | |STUDENTS ACCOUNTS |4 |21. 0% | | | | | |CASHIEERING |3 |15. % | | | | | |PLANNING |3 |15. 8% | | | | | |TOTAL (Population) |19 |100 % | The sample frame shown by the above table is big.
The total 19 includes both employees and management. This necessitated the use of a sample to choose ten people out of the possible 19 to be interviewed. 3. 4 SAMPLING This is a technique used to select elements of the sample. The sample should be representative meaning it should reflect all the characteristics of the population. 3. 5 SAMPLING PROCEDURE In the above case, an equal representation of people from all the four departments was considered and an equal ratio of employees to management was also used. The judgmental sampling technique was used.
This technique was chosen on the basis that the researcher judgement be used in the selection of people to be considered as elements of the sample frame. A sample frame of twelve was chosen. Each department has one senior person heading it and the rest are accounting assistants some being senior. This necessitated the use of a sample in order to take any equal number of people from each department. All managers were taken and two accounting assistants per department were chosen. 3. 6 TYPES OF DATA The Collins English Dictionary defines data as facts and figures from which conclusions can be inferred.
In short data is unprocessed information. There are three types of data, which are; primary data, secondary data &Tertiary data, (the researcher only used the two below). Primary Data Is data collected by the researcher to answer the research objectives. Primary Data was obtained from the bursary staff at M. S. U. The data was Collected through interviews and questionnaires. . ADVANTAGES OF USING PRIMARY DATA The main arguments why primary data was used was that that data collected was relevant to the research, the questions formulated was relevant to the research.
Bias was reduced as data was collected from both management and employees, which is from both parties responsible for the debtors control system. Limitations encountered in using Primary data It was time consuming to collect data from both parties as they were in different departments and areas. Some responses provided were misleading. Some were not sure and ended up giving wrong conclusions. Effort made to reduce the shortcomings of primary data Managers who were distanced were sent the questionnaires over the local e-mail facility.
Responses provided were complemented by information from interviews. This helps to clarify and remove out any misleading information that had been previously provided. ii) Secondary Data Is data collected from existing records of the company or organisation under study. Secondary data was collected from M. S. U monthly reports. These included; ? Debtors end of semester reports ? Debtors overall monthly reports Strengths of using secondary data Secondary data was readily available to the researcher. It was easy to collect as some of it was already aggregated.
A strength was that secondary data avoids repeating work that may have been collected from other respondents as in the case of primary data. It was cheap as compared to primary data as no copies were circulated and the data was obtained from one department where it is stored for referencing purposes. Limitations of using Secondary data Some of the data available was not up top date and therefore some reports were not necessary. The researcher also noted that the data presented was for a specific purpose and therefore some of it was not relevant to the study.
An example was that of month-end managerial reports, these are produced to show the debtors figure and do not show the breakdown and age of the debt. The research took significant steps to reduce the negative impact of shortcomings of secondary data on the research. All outdated information was deliberately left out of the study. The researcher took care to consider the purpose for which the data was collected. 3. 7 RESEARCH INSTRUMENTS USED These are the means by which the researcher collects information. To gather data, the researcher is to make use of questionnaires and personal interviews. 3. 6. 1 QUESTIONNAIRE
Is a document that asks the same questions to all the respondents in the sample. There are two types of questionnaires, which are self-administered questionnaires and interview-administered questionnaire. a) The respondent completes self-Administered Questionnaire-. They can be posted or hand delivered. b) Interview Administered Questionnaire- They are recorded by the interviewer on the basis of each respondent’s answers. Face to face conversations or telephone conversations can be used for this type of questionnaire. For the purposes of this research, self-administered hands delivered questionnaires are to be used.
These types of questions will help the researcher on analysing the responses because it is easy to code and tabulate the responses. ADVANTAGES OF USING QUESTIONNAIRES Questionnaires were used because they give the interviewee time to cross check data before answering. Some questionnaires were sent over the e-mail to geographically spaced managers. This made it possible to collect data from all intended respondents. Bias was eliminated since the researcher presented the findings from employees only, no international manipulation by the researcher since answers were limited and the findings were presented as found from employees.
Limitations freely gave their views because there was no disclosure of identity. LIMITATIONS OF USING QUESTIONNAIRES Some respondents were not sure of the right answer so they ended up giving out wrong conclusions. Questions used tended to restrict the response to Yes, No and Not sure. There was no room to explain why the response chose either response. Delays in the sending back of questionnaires were another problem encountered. In an effort to overcome the shortcomings of a questionnaire, a pilot study was carried out at M. S.
U This was done to ensure the questions meet the criteria for what they are required to test. Interviews were then held with the section managers and employees afterwards to discuss more on the questionnaires soliciting some information which the limited responses on the questionnaire could not fully answer thus overcoming shortcomings of the questionnaires. 3. 8 INTERVIEWS An interview is a face-to-face discussion between two or more people. These assist the researcher in the flow of questioning and probing at the same time sticking to the research.
Structured Interview The researcher used the structured interview were questions were predetermined before the interview. The questions were mainly following up to the ones in the questionnaire. They sought to probe further and bring out that deep-rooted information which questionnaires could not provide. STRENGTHS OF INTERVIEWS Interviews provided the researcher with more follow up information to the one supplied in the questionnaire. The structured questions helped to provide more information, some of which was not asked in the questionnaire but was necessary.
Abstract features of the system were revealed by the observation of attitudes, feeling opinions, reactions of respondents to certain questions that were asked about the debtors control system. LIMITATIONS OF INTERVIEWS Interviews took time to carry out as appointments had to be made first. All the four section heads had been lined up to be interviews but because of pressing business only one of them was available for interview. Employees’ disclosed some sensitive information which management did not reveal. The problem was that employees did not have all the necessary sensitive information . 9. SUMMARY Chapter 3 discussed the research design, questionnaire, the sample, data presentation, interpretation and analysis of data. CHAPTER FOUR DATA ANALYSIS, PRESENTATION AND INTERPRETATION 4. 1 INTRODUCTION In this chapter data findings are presented, analysed and interpreted as they relate to the theory that underlies the study. 4. 2 QUESTIONNARE RESPONSE RATE A sample size of twelve was chosen. All respondents answered making a total response rate of 100%. The respondents comprised of four section heads and two accounting assistants in each of the four departments shown below. Department |No of Respondents |Percentage of response | |ACCOUNTING AND FINANCE |3 |100 | |PLANNING |3 |100 | |STUDENTS ACCOUNTS |3 |100 | |CASHIEERING |3 |100 | |TOTAL |12 |100 | 4. 3 QUESTIONNAIRE ANALYSES AND PRESENTATION
Questions one to three sought to establish the existence of a debtors control system at MSU. (See Appendix for the questions) The responses are shown presented below. AVAILABILITY OF A DEBT CONTROL SYSTEM Questions one to three sought to establish the existence of a debtors control system at MSU. The findings are presented and interpreted below. Fig 1Debtors control system As shown by Fig1 above, there is a debtors control system at MSU. This was further supported by the findings from the interviews. An average of responses from the questionnaires showed that there is a debtors control system.
CREDIT POLICY EFFECTIVENESS Questions 1a to 1g were follow up questions to question one. They sought to evaluate the effectiveness of the Credit policy identified by analysing the procedures of granting credit, assessing whether these procedures are documented, being followed and also assessing if there are any necessary elements missing out. The responses are shown below. Fig 2Effectiveness of the credit policy As shown by fig two above, the credit policy implementation is not effective as the total agrees on the effectiveness of it failed to reach 50%.
The diagram shows the response per question, averaging the percentage repossess in order to make a comment on all the responses then makes an overall analysis of responses. Findings from the interviews helped cement the questionnaire responses. They too revealed that the system was not effective. COLLECTION POLICY Questions 2a-2f are follow up questions to the second question on the collection policy. They sought to determine the effectiveness of the collection policy by asking questions that help assess the ability of the policy to collect funds from debtors timeously.
The results are shown below. FIG 3 As shown by fig three above, the collection policy is not effective as it commands a percentage response of agrees of less than 50%. Findings from interview helped explain deep underlying problems that are responsible for the ineffectiveness of the collection policy. Questions on the availability of debt control tools in the system Questions 3a to 3f sought to assess the availability of control for debt control in the system identified by the first questions. Direct questions pertaining to debt control tools like ageing analysis, control accounts were asked.
The responses are shown below Fig 3 As shown by fig 3 above the organisation has debt control tools in use. This was further supported by findings from the interviews. 3. 3 INTERVIEW FINDINGS The researcher held interviews with employees asking the same questions but designed in a manner that they gave the respondent room to explain fully. These are attached at the end of this report. The period customers normally take to settle accounts [pic] [pic] As shown by the above pie chart, customers are taking too long to settle debts as 62. 5% of the respondents state that the payment period is long.
This clearly exposes the loopholes in the current debtors collection policy the organisation is using. The authority said it has sufficient personnel within to carry out all credit control. [pic] The pie chart above shows that the organisation lacks enough personnel to administer and carry out credit control duties. This negatively affects the collection policy of the organisation. This was also supported by the findings from the questionnaires. Lack of adequate personnel is an indication that resources are lacking in the current debt control system. 3. 4 CHAPTER SUMMARY
Findings from questionnaires and interviews were presented and comments made per diagram CHAPTER 5 FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 5. 0 INTRODUCTION In this chapter main findings from the research are highlighted and the conclusions drawn from the findings are stated. The recommendations for each stated finding would be made. A chapter summary is provided at the end. 5. 1 DEBTORS CONTROL SYSTEM 5. 1. 1 Findings M. S. U has a weak debtors control system. 5. 1. 2 Conclusions; Though MSU has a debtors control system, a) 36% percent of the respondents were either not sure or stated that the organisation has no such system in use.
The documented policy is there but it seems to be kept away from employees of the company. b) The organisation has no laid down standards or credit control procedures. No vetting of customers is done; everyone can be registered any time as long as they supply their name, address ,degree programme and identity only. This increases the level of debt and bad debts as some people who are not credit worthy are being given credit. c) There is no training of workforce in the students accounts department. This reduces the efficiency of the current policy as workers work under instruction and not on their own. 5. 1. 3 Recommendations;
Though, the organisation has a debtor control system as confirmed by the findings, the authority should however improve on the communication of the debtors control system to its employees. Circulating the documented credit policy to all relevant employees accompanied by joint monthly reviews of the policy by both management and employees help to create awareness of the policy by all members of the organisation. Apart from creating awareness it results in the joint integration of ideas, which may improve the company’s debt control by soliciting information from all corners thus exposing all loopholes that either part notices.
The organisation should vet all potential customers and categorise them on their ability to pay. Requiring information about the client’s financial position, employment position and previous businesses where the potential customers has been a debtor helps the organisation assess the ability of the customer to pay back the organisation in time. Taking into consideration the ability of the customer to pay back should be the basis of registration of potential customers. This helps reduce bad debt. The organisation should continuously train its workforce including the few who have been trained.
This equips them with necessary skills to do the job on their own. It also improves the effectiveness of the system, as workers will be working on their own and not under instruction. Training helps create a sense of ownership of the job and the policy, which would help motivate and challenge workers to work for the improvement of the system. 5. 2 DEBTORS CONTROLS 5. 2. 1Findings The organisation has debt controls in use. 5. 2. 2 Conclusions; Though the authority has controls in place, they do much of debt monitoring than debt control.
The main conclusions drawn were that; a) The organisation does not use the ageing analysis in analysing debts. b) Debtors are written off mainly on the basis of time value of money. c) Debt control ratios are used d) Debt reconciliation’s are done per semester 5. 2. 3 Recommendations The organisation has debt controls in place. The debt controls only show the level and position of debt at a particular time. No action is taken basing on the position revealed Debts should not be allowed to age until they reach the 120 days, as this is the basis for writing them off.
Monthly or weekly collection targets should complete debt controls in use. This helps assess the payment habits of customers and becomes the basis for the taking of correction upon the deviation from the monthly collection targets. 5. 3 DEBTORS COLLECTION POLICY 5. 3. 1Findings; The organisation has a collection policy. 5. 3. 2 Conclusions; Though the organisation has collection policy, the policy is not availing funds timeously in the organisation. The main findings were; a) Debtors are not paying on time. They are taking too long to settle accounts above 120 days to settle major accounts. ) The organisation does not have adequate resources for debt control and collection. c) Organisation uses barring from examination rooms to compel customers to pay. 5. 3. 3 Recommendations; Though the organisation has a collection policy, the policy is not effective. Debtors are paying after 120 days on average. In actual fact late payment of the current fees and loans on the age analysis should be followed up. Rendering of services should be reinstated upon the provision of a receipt showing the current payment. The organisation should avail all adequate resources for debt control.
Organisation should invoke debt collection agencies to defaulting customers who pay the current accounts only neglecting the major debts in the 90 days and above range. Debtors be handed over to debt collection agencies upon the expiration of two months and be made to pay the agency fees. 5. 4 CONCLUSIONS The debtors control system present is failing to effective control and collect monies tied up in debtors. Appropriate recommendation has been provided basing on the findings drawn from the research carried out on the company. APPENDIX BIBLIOGRAPHY
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Cite this Debtors Management
Debtors Management. (2016, Oct 02). Retrieved from https://graduateway.com/debtors-management/