TH 99

SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION
Km. 30 Old National Highway, Brgy. Nueva, San

KnPedro City, Laguna
PERCEIVED IMPACT OF ACCOUNTS RECEIVABLE MANAGEMENT ON THE

PROFITABILITY OF SMALL AND MEDIUM-SIZED ENTERPRISES
An Undergraduate Thesis Presented to the
Department of Accountancy
San Pedro College of Business Administration
San Pedro City, Laguna
In Partial Fulfillment of the Requirements for the Degree of
Bachelor of Science in Accountancy
BARROMA, Dian Irish B.
RABY, Alexander Maxteode R.
TAPAGANAO, Jade D.
December 2021
i
ACKNOWLEDGEMENT
The completion of this study could not have been possible without God’s provision of
knowledge, good health, courage, and patience. It could not have been possible also without the
participation, guidance and help of so many people whose names may not all be mentioned and
enumerated. Their contributions are gratefully acknowledged and sincerely appreciated.
However, the researchers would like to express their appreciation particularly to the following:
To Mr. Emmanuel S. Varona, the researcher's thesis adviser, for his unwavering support,
patience, and assistance during this study. A dedicated adviser who never ceases to teach us and
never fails to support us during the most difficult times of this study and listens to our concerns.
To Mr. Leonard Paunil, the researcher's thesis grammarian and statistician, for his
unwavering support, assistance, advice, and patience in explaining the study's process and
results.
To the participants or respondents in this study who, despite the fact that the study was
performed in the midst of a pandemic, took the time and effort to complete the online survey
questionnaire honestly.
To all families, friends, and anyone who contributed financially, morally, spiritually, or
physically. Especially to the researchers' devoted parents, who provided everything needed to
perform this study and guided the researchers in the right direction.
Above all, to God, the author and source of knowledge and wisdom, for his unending love
and support. Thank you very much!
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LIST OF TABLES AND FIGURES
Figure Title Page

1 Conceptual Framework 6
Table
4.1 Business Profile in Terms of Total Value of Assets 32
4.2 Business Profile in Terms of Total Value of Liabilities 33
4.3 Business Profile in Terms of Years of Operation 34
4.4 Business Profile in Terms of Years of Offering Credit 35

Sales
4.5 Level of Strictness of the Credit and Collection Policy 35
Imposed by Selected Small and Medium-sized
Enterprises
4.6 Financial Performance of Selected Small and Medium- 36
sized Enterprises in terms of Receivable Turnover for the
Fiscal Years 2019 and 2020
4.7 Financial Performance of Selected Small and Medium- 38
sized Enterprises in terms of Sales for the Fiscal Years
2019 and 2020
4.8 Significant Difference on the Effect of Accounts 39
Receivable Management on Financial Performance in
Terms of Receivable Turnover based on Years of
Operation
4.9 Significant Difference on the Effect of Accounts 40
Receivable Management on Financial Performance in
Terms of Sales based on Years of Operation
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LIST OF APPENDICES
Appendix Title Page

A Survey Questionnaire 45
B Request Letter 51
C Statistician’s Certificate 53
D Grammarian’s Certificate 54
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TABLE OF CONTENTS
page
Title Page I
Acknowledgement II
List of Tables and Figures III
List of Appendices IV
Table of Contents V
CHAPTER 1: THE PROBLEM AND ITS SETTING
Introduction 1
Background of the Study 2
Statement of the Problem 3
Hypotheses 4
Theoretical Framework 4
Conceptual Framework 5
Scope and Limitation 7
Significance of the Study 7
Definition of Terms 8
CHAPTER 2: REVIEW OF RELATED LITERATURE AND
STUDIES
Foreign Literature 11
Local Literature 14
Foreign Studies 18
Local Studies 22
Synthesis 24
CHAPTER 3: RESEARCH METHODOLOGY
Research Design 26
Description of Population 26
Population Data and sample size 27
Sampling Method 27
Data Gathering Procedure 28
Hypothesis Testing 28
Relative Frequency 29
Weighted Mean 29
Chi-Square Test of Independence 30
CHAPTER 4: RESULTS AND DISCUSSIONS
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS
Conclusions 42
Recommendations 43
REFERENCES 55
CURRICULUM VITAE 61
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CHAPTER 1
THE PROBLEM AND ITS SETTING
Introduction
In today's competitive environment, being in the market is critical for any business. Small
and medium-sized enterprises (SMEs) are among the businesses that have struggled to make
sales, especially those that have recently begun operations. People are hesitant to trust new
products, and some would rather purchase from larger corporations. As a result, some of these
SMEs would offer credit sales to potential consumers. Credit sales or those sales made on
account are one of the most effective ways to remain competitive because it not only attracts
customers but also increases sales. Accounts receivable is one of the different components of
current assets. This term can be defined as customers' debt owed to the firm as a result of the
sale of goods or services in the ordinary course of business.
Accounts receivable management entails ensuring that customers pay their invoices on
time, and it is important to monitor them. It has a direct impact on the profitability of a particular
company. Good receivables management directly contributes to a company's profit because it
reduces bad debt. They also have a better cash flow and higher available liquidity for use in
investments or acquisitions. Furthermore, effective receivables management boosts a
company's professional image. On the other hand, if the company has an excess of receivables,
it increases costs by blocking the company's funds. Hence, establishing proper and reasonable
credit and collection policy are important.
1
As a result of these scenarios, the researchers aimed to conduct a study to determine the
impact of the accounts receivable management on profitability of the selected small and
medium-sized enterprises (SMEs). To see if there are different effects based on years of
operation. Most importantly, to provide and contribute significant research to potential
beneficiaries.
Background of the Study
Small and medium-sized enterprises (SMEs) in the Philippines play a critical role in
economic growth and industrial development because they make up a large part of the business
landscape. Due to a lack of working capital, not all of them can offer sales on account. However,
some issues arise for those who offer sales on account, particularly in the management of
accounts receivables. Accounts receivable management is becoming increasingly important,
especially during times of crisis when SMEs are struggling to generate revenue. They
sometimes have bad days when anticipated collections are not received, particularly now that
there is a pandemic and everyone is financially impacted. It is important to collect them in a
timely manner because it is a big part of calculating the business' profits. In most firms,
receivables represent a large financial source, which is why efficient receivable management in
businesses is relevant not only to ensure the collection of payment but also to guarantee a better
cash flow, to have a higher available liquidity and to increase profitability. Accounts receivables
management is a crucial field of finance because it affects a firm's profitability and therefore
affects the firm’s value (KsenijaDenčić, 2013).
2
According to a study conducted by Kirinyaga University in Kenya entitled “The Effect of
Receivable Management on the Performance of Small and Medium Scale Manufacturing Firms
in Kiambu County, Kenya", (2019) the sampled firms in Kiambu County were found to have
good receivables management practices. There was no statistically significant relationship
between credit selection, credit standard, credit terms, and profitability, but a statistically
significant relationship existed between collection efforts, monitoring of receivables, and
profitability. Thus, it can be concluded that firms which aggressively manage the post-delivery
activities of receivables management enhance the profitability of their firms. Faster cash
collection from receivables enhances the liquidity level of the firm as it has proved to have a
strong relationship with profitability.
Given that the related study found that accounts receivable management has a positive
effect on profitability, the researchers investigated whether there is a difference in the impact
of accounts receivable management on profitability and compared the effect to the selected
Small and medium-sized enterprises (SMEs). The study's findings will greatly benefit the
study’s beneficiaries.
Statement of the Problem
The main purpose of this study is to determine the impact of accounts receivable
management on the profitability of selected Small and Medium-sized Enterprises. Specifically,
it attempts to answer the following questions:
1. What is the demographic profile of Small Medium-sized Enterprises in terms of;
a. Total assets and liabilities;
3
b. Years of operation;
c. Years of offering credit sales?
2. What is the credit and collection policy imposed by selected Small and Medium-sized
enterprises in terms of strictness?
3. What is the financial performance of selected small and medium-sized enterprises for the
fiscal years 2019 and 2020 in terms of;
a. Receivable turnover;
b. Sales?
4. Is there a significant difference on the effect of accounts receivable management on
financial performance in terms of receivable turnover and sales as perceived by selected small
and medium-sized enterprises based on years of operation?
Hypotheses
The researchers formulated their hypothesis at 0.5 level of significance:
1. There is no significant difference on the effects of accounts receivable on financial
performance in terms of receivable turnover and sales as perceived by selected small and
medium-sized enterprises based on years of operation.
Theoretical Framework
The DuPont model, also referred to as the DuPont analysis, is a financial ratio focused on
the return on equity ratio that is used to evaluate a company's ability to optimize its return on
equity. In other words, this model deconstructs the return on equity ratio in order to illustrate
4
how businesses can increase shareholder returns. It aids in determining which areas of the
company are underperforming in terms of operating performance, asset utilization efficiency,
and financial leverage. Smith (1987) was one of the first researchers to investigate the tradeoffs
between working capital management (WCM) and profitability using the DuPont system theory
and coming to the conclusion that WCM affects profitability purely by definition.
According to advocates of this theory, by reducing the amount of capital invested in
working capital, the company can effectively increase the asset turnover ratio which in turn will
increase ROA which DuPont further shows that ROA will increase the return on Equity hence
increase shareholder value (Rehn, 2012). It merges the income statement and the balance sheet
into two summary measures of profitability: return on total assets and return on equity.
The DuPont System Theory is relevant to the research topic because it can be used to
investigate the tradeoffs between the independent and dependent variables. The management
of receivables is supposed to affect a firm's profitability, as seen in the above model. A tight
credit and collection policy is expected to be strict in credit customer selection, to have strict
credit standards, and to have strict credit terms. These are expected to have a positive impact
on profitability because they will result in lower receivables investment costs and a lower level
of bad debt. A loose credit and collection policy, on the other hand, is expected to have the
opposite effect on profitability.
Conceptual Framework
The study adopted the following conceptual framework that shows how the researchers
researched, surveyed and solved their thesis statement:
5
The study's conceptual framework includes the demographic profile of the respondents, as
well as the independent variable (Accounts Receivable Management), which includes credit
policy (credit selection, credit standard, and credit terms) and collection policy (collection
efforts and receivables monitoring).
On the other side, the process involved the collection of data through the use of survey
questionnaires and the statistical analysis and interpretation of the data collected from the
respondents. The output covered the dependent variable which involves the impact of Accounts
Receivable Management on the Profitability of the respondents.
Conceptual Framework
Figure 1
INPUT PROCESS OUTPUT
Demographic profile 1. The collection of Impact of Accounts

1.Total assets and liabilities data through the use Receivable Management
2. Years of operation of survey on the Profitability of the
3. Years of offering credit questionnaires. respondents
sales
2. The statistical
Accounts Receivable
Management analysis and
1. Credit policy interpretation of data.
•Credit selection
•Credit standard
•Credit terms
2. Collection policy
•Collection efforts
•Monitoring of
receivables
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Scope and Limitation
The study examined accounts receivable management and profitability of small and
medium-size enterprises in Santa Rosa Laguna, Biñan Laguna and Muntinlupa. The study is
basically concerned with the credit and collection policies of selected small and medium-sized
enterprises (SMEs). In terms of profitability, this study learned about the selected SMEs'
financial performance in terms of receivable turnover, and sales over the last two years (2019
and 2020).
The respondents are twenty-five (25) small and medium-sized enterprises (SMEs). Due to
the small number of supposedly target respondents and the difficulties of communicating with
SMEs in the same line of business and in the same location, the study focused on SMEs in any
line of business that offer credit sales and are located in Santa Rosa Laguna, Biñan Laguna and
Muntinlupa. The information provided by the SMEs is the primary source of data for the study.
However, due to the difficulty of gathering data from SMEs' financial records amidst this
pandemic, the researchers provided choices or situations to describe the receivable turnover and
sales of SMEs using the survey questionnaire rather than providing precise data.
Significance of the Study
The results of this study regarding the impact of accounts receivable management on
profitability of SMEs are significant to the following:
1. To the researchers of the study:
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The researchers will learn how the selected respondents handle their accounts receivable
and how it impacts their business' overall profitability. As a result, they will gain a better
understanding of the subject.
2. To the selected small and medium-sized businesses that manage accounts receivable:
The managers and owners of the small medium-sized enterprises will be able to determine
whether their accounts receivable management is effective enough to positively influence their
profitability.
3. To small and medium-sized enterprises planning to implement accounts receivable
management:
The study is expected to have a significant contribution on businesses that plan to provide
credit sales because it will give them a deeper understanding on how selected SMEs handle
their receivables, potentially reducing their start-up failures.
4. To the future researchers:
The study is expected to provide additional literature on accounts receivable management
that future researcher can rely on in their literature review.
Definition of terms
To understand and clarify the terms used in the study, the following are hereby defined:
Accounts Receivable - the proceeds or payment which the company will receive from its
customers who have purchased its goods and services on credit.
Accounts Receivable Collection Period - measures the average number of days that credit
customers usually make the payment to the company.
8
Accounts Receivable Management – set of policies and procedures to ensure that owed
payments are collected on time, in their entirety and credited to the proper account.
Cash Flow – net amount of cash and cash-equivalents being transferred into and out of a
business.
Collection Period– average number of days required to collect receivables from
customers. It is measured as the interval from the issuance of an invoice to the receipt of cash
from the customer.
Collection Policy – set of procedures a company uses to ensure payment of accounts
receivables.
Credit Policy – guidelines that structure the amount of credit granted to customers, as well
as how collections are to be conducted for delinquent accounts.
Credit Sale – purchases made by customers who do not render payment in full, in cash, at
the time of purchase and will be paid at a later date.
Liquidity– refers to the ease with which an asset, or security, can be converted into ready
cash without affecting its market price.
Medium-sized Entities – entities that have total assets of more than One Hundred Million
Pesos (P100 Million) to Three Hundred Fifty Million Pesos (P350 Million) or total liabilities
of more than One Hundred Million Pesos (P100 Million) to Two Hundred Fifty Million Pesos
(P250 Million).
Net Income– amount of accounting profit a company has left over after paying off of all
its expenses.
Profitability– degree to which a business or activity yields a profit or financial gain.
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Receivable Turnover - a measure of how quickly a company is collecting its sales that
were made on credit.
Sales- refers to a company's revenue earned from the sales of products or services.
Small Entities– entities that have total assets of between Three Million Pesos (P3 Million)
to One Hundred Million Pesos (P100 Million) or total liabilities between Three Million Pesos
(P3 Million) to One Hundred Million Pesos (P100 Million).
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CHAPTER 2
REVIEW OF RELATED LITERATURE AND STUDIES
This chapter talks about the review of the related literature and studies which contains
comprehensive and valued data and information that will support the purpose of the study. It
provides further visions to strengthen the research itself.
Foreign Literature
According to Parekh, L. (2020), Accounts receivable management refers to the timely
collection of payments due for Sales. When a business sells any services, products or solutions
to their clients or customers, they owe them the money. Receivables management is the process
of collecting money. The overall goal is to maintain a healthy cash inflow with the benefits of
better cash flow, lower working capital requirements, lower interest costs, better bargaining
with sellers, and the elimination of profit leakages. Managing receivables can be a very complex
task depending on the nature of the business. As the business expands and the offering becomes
more complex, the payment collection process must be designed accordingly. That is why a
proper credit and collection policy must be established.
Furthermore, O’Brien, L. (2019) states that collection policy is a guide that provides an
organized and repeatable philosophy for selling rules, regulations, and procedures for managing
daily operations. A credit collections plan's aim is to clearly identify these elements so that sales
and collections employees follow established steps and procedures to maximize resources,
11
minimize credit risk, and increase overall cash flow. Credit collections policy would ensure that
all consumers are handled equally and clear credit decisions are made. It can also be used as a
training tool for new sales associates and the credit and collections team, as well as to ensure
that procedures and implementation are consistent in the credit department, sales, and
management. One of the most important factors in effectively collecting the money owed to
you is through consistency. The team would be much more consistent, effective, and productive
in collecting outstanding Accounts Receivable if they have a formalized plan that employees
follow and document all steps and communications along the way.
Also in addition, O'Bannon (2017) states that in order to get a firm grip on receivables, a
company must develop firm processes for inputting invoices, ensuring accurate contact details
for consumers or clients, and establishing payment terms, which may include incentives for
customers to pay early or penalties for persistent late payers. For invoice-based businesses, as
opposed to payment-on-delivery businesses, strong receivables management procedures will
not totally eliminate late payers, so a collections process must also be implemented as a final
step, prior to writing off or selling bad debt. There are some general guidelines that can help
small companies keep track of their receivables, reducing aging and, ideally, maintaining a
constant flow of cash into the company. They must process invoices electronically, accept
online payments, implement automated payments, review receivables aging reports, contact late
payers, set up incentives and penalties, and sell hopeless AR cases.
On the other hand, Woodruff (2019) discusses the advantages and disadvantages of offering
credit sales in businesses. Although it would be ideal to conduct all transactions in cash, this is
not always possible. A business owner must consider the effects on his company before
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venturing into the potential minefield of taking credit risks with customers. It is possible that
good things will happen, such as a boost in revenue by providing credit sales if the competitors
do not. Furthermore, giving customers’ credit shows that businesses value and trust them to pay
their bills on date. Customers will reward these gestures of confidence by continuing to buy
from their business. They will feel a degree of loyalty, and they like to do business with
someone who trusts them. However, it can have a negative impact on the business's cash flow,
and there may be a need to fund accounts receivable and the risk of bad debts. Offering credit
to customers is a necessary evil to remain competitive in the marketplace. If the competitors are
offering credit terms, companies must do the same. Otherwise, customers will abandon them.
Moreover, the article about Employment, Small Business and Training (2020), listed the
risks associated with credit offering. The first risk is a reduction in cash flow. Businesses may
have to wait for customer payments, limiting their ability to buy replacement products from
suppliers. Some of them are considering debtor financing to mitigate this risk. The second risk
is a decrease in profit margins. Credit sales funding reduces a company's profit margin. The
cost of this is usually only visible in the profit and loss statement, so it is important to keep this
in mind when pricing products and services. Large debts are the third risk. Unpaid debts can be
a risk to a company. This is particularly true if a company is subject to large single transactions.
In addition, the article about 4 Components of a Credit Policy (2018), there are four
components to be considered in designing a strong credit policy to minimize the risk of
delinquent accounts. First, before extending credit, contact the credit department in your
industry to confirm if they have made good on previous obligations. Second, consider industry
practices and the creditworthiness of individual customers when making a policy. In some
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industries, credit periods for new customers might start with a “net 30’ standard, allowing them
30 days to settle their payments before the accounts become delinquent. On the other hand, best
customers may warrant longer payment terms, such as 60 to 90 days. Third, businesses should
prove that they are diligent about the payment process and expect timely payment by having
formal procedures, specifically by documenting purchase orders, contracts, credit applications,
sales agreement and invoices. And lastly, credit policy should explain the steps that the business
will take if an account becomes delinquent. It should give information regarding late fees,
charges, overdue notifications and when delinquents' accounts will be reported to credit
agencies or turned over to a collection agency.
Local Literature
According to the article entitled "Cash Flow – A constant challenge for SMEs in the
Philippines" (2020), in order to expand a customer base, a business will typically have to offer
credit terms to customers. These customers are also attempting to manage their own cash flow,
which is especially important if they are a start-up or SME. If businesses refuse, customers
could very well move to a competitor who offers more reasonable payment terms. In today's
competitive world, avoiding credit terms is not an option. A company can keep proper controls
on its receivables. First, when offering credit terms to customers, seek an advance or down
payment. This is one method of reducing receivables while also partially hedging against non-
payment. Second, only offer credit terms that are compatible with a client's creditworthiness.
Understand the ability of a client to pay. If a client is constantly late with payment, do not
consider extending credit terms unless they can prove their ability to consistently pay on time.
14
Then, take advantage of technology to automate accounts receivable functions. Finally, put
controls and processes in place for the accounts receivable function. It is important that they do
not fall behind in the market, so they must compete.
Also, an article entitled “5 Ways to Manage Your Accounts Receivable More Efficiently”
(2017) mentioned ways to manage accounts receivable more efficiently. One out of every four
small companies have difficulty managing their accounts receivable due to customers who
either underpay them, pay after the terms have expired, or are simply unable to pay due to
financial difficulties brought on by the economic downturn. There are a few steps that can be
taken to fix it and ensure better receivable management. First and foremost, businesses must
assess their financial and credit history. Perform a background check on a company's financial
and credit records before deciding to do business with them. Second, establish clear payment
terms between client and business. Then it is time to do electronic invoicing. Businesses can
now submit invoices by email using applications available on the internet, due to technological
advancements. Then offer a variety of payment options. Payment delays are often induced by
the clients' dissatisfaction with payment methods. To turn things around, add options to the
company’s payment system other than PayPal and Credit Cards. Finally, outsource the
company's accounts receivable management. To ensure business sustainability, every
company's accounting functions must be well-managed. This is why, for most companies,
accounts receivable outsourcing is the best choice.
Furthermore, Gaspar, C. S. (2020) mentioned some ways for improving cash flow through
accounts receivables. In order for clients to be able to schedule their funds for payment and pay
earlier, getting invoices completed on time is critical. It is critical for both parties to have the
15
payment terms in writing so that they know what goods or services must be delivered by a
certain date and how much must be paid within a certain time frame. Keep a system in place
for invoice management. Knowing how old invoices are will help businesses assess which
customers should follow up with and whose accounts must prioritize. Keep an eye on the
collection rates. Do not be hesitant to contact us–be proactive and direct. The importance of
getting a company’s accounts receivable settled cannot be understated. After all, the funds
generated by the accounts receivable can help pave the way for future investments, among other
things. Keeping a close watch on these numbers is a sure-fire way to keep accounting balanced
and business honest.
On the other hand, Lagua (2017) an author in Manila Times news listed four major
instruments for mitigating credit risk for SMEs. The first is self-insurance, which entails setting
aside bad-debt reserves in a liquid account that can offset the deficit if a large invoice is not
paid by a customer. A second option is to factor or sell the receivables outright. A factor will
pay a discount for the account receivable and assume the risk of non-payment. The critical issue
here is the factoring firm's required discount, which can significantly reduce the small business
owner's profit margin. Another option is to obtain a bank letter of credit, which guarantees
timely and complete payment of a buyer's obligation. This is usually arranged by the buyer at
the request of the seller, especially for larger ticket item sales transactions. Finally, trade credit
insurance is a policy that pays out if a customer fails to pay a covered invoice. Trade credit
insurance protects against the risk that the buyer will pay late or not at all. A percentage of the
outstanding debt is paid out by the trade credit insurance policy. Small business owners face
numerous risks that can negatively impact their company's success. Risk refers to the possibility
16
of a negative outcome, such as a loss of earnings or capital, or the imposition of constraints that
make the achievement of projected income uncertain. Especially now, when there is a pandemic
and sales are extremely low.
In line with this, Lugtu (2021) discussed the global recession, which put tremendous strain
on business operations. Many are struggling to stay afloat, and others have completely shut
down operations, making Accounts Receivable collection difficult. The Philippines posted the
highest degradation rate — 6.6 percent — from 25.6 percent in December 2019 to 32.2 percent
last June. This means 32 out of 100 businesses in the country were paying beyond three months,
compared with India’s 16 and China’s 14. It can already infer this from the prolonged
lockdowns imposed in the Philippines and their economic impact, which worsened business
customers' late payments to their suppliers. Given the challenges that businesses face in
collecting their accounts receivable, innovative approaches are required to maximize the impact
of collection efforts. The first step is to implement customer segmentation. The second step is
to streamline operations and processes. Because of Covid-19, there will be a need to revise A/R
policies and processes, as there may be changes in the method by which the company invoices
customers, the process by which outstanding invoices are collected, and the way transactions
are recorded. Finally, after all of these approaches have been implemented, empathy should be
at the heart of their execution. All businesses and individuals are currently facing an
unprecedented crisis. That is why businesses must approach delinquent customers with
empathy: in how they communicate, negotiate, and resolve.
17
Foreign Studies
According to the study of Kontuš, M. S. (2013) entitled “Management of Accounts
Receivable in a company”, accounts receivable management has a direct impact on a company's
profitability. The purpose of the empirical part of the study was to analyze accounts receivable
and to demonstrate a correlation between the accounts receivable level and profitability
expressed in terms of Return on Assets (ROA) of sample companies. The study concluded that
accounts receivable management includes determining an appropriate credit policy as well as
investigating ways of speeding up collections and reducing bad debts. Based on the findings of
this activity's study, a corporate model was developed. The construction of the model entailed
the description of variables and the specification of the model. A new corporate model for
estimating net savings from adjustments in credit policy, as well as a demonstration of the
association between accounts receivable levels and profitability, was among the major findings.
The corporate model can be used to consider improvements in credit policy and make the best
use of accounts receivable in order to maximize profits while minimizing risk.
Also, the study conducted by Jindal, Jain, & Vartika (2017) entitled “Effect of Receivables
Management on Profitability: A Study of Commercial Vehicle Industry in India”, showed that
the debtors' turnover ratio has a significant positive effect on the profitability of companies in
India's commercial vehicle industry. The study examined the effect of efficiency of receivables
management, measured by debtor’s turnover ratio, in the commercial vehicle industry in India
on the firm’s profitability. Return on Capital Employed was used to determine profitability. The
study concluded that the firm's profitability will improve as the debtors' turnover increases. As
a result, effective accounts receivable management boosts profitability. The profitability of a
18
company is unaffected by its growth or liquidity. Firm profitability, on the other hand, increases
as the efficiency of fixed asset usage improves, as measured by the fixed asset turnover ratio.
At the same time, increasing the percentage of fixed assets helps businesses make profit.
Companies in the commercial vehicle industry should concentrate on improving their credit
policies and collection efforts in order to properly manage their receivables.
Furthermore, according to the study conducted by Sudjiman (2017) entitled “The Effect of
Return of Receivables on Profitability in financing Institution Sector Company registered on
the IDX 2013-2017”, the relationship between accounts receivable turnover and profitability
(ROA) was positive, with r = 0.449. It demonstrated that the level of relationship between
variables is moderate in this study. The study aimed to investigate the effect of return on
receivables on profitability in the Financing Institution Sector Services Company listed in
Indonesia Stock Exchange (IDX) in 2013-2017. Based on the results of statistical analysis by
the author, the Receivable Turnover correlation coefficient to Profitability has a significant
effect between receivable turnover to profitability seen from the value r = 0.449, Significant
value 0.01 <0.05. The coefficient of determination which showed R square = 0.068, which
means that the number showed the contribution of accounts receivable turnover factors to
profitability of 20.1% while 79.9% is influenced by other factors not examined in this study.
The size of the funds invested in receivables was directly affected by the high and low
receivable turnover. Receivables that were too large can be harmful to the company because
the working capital embedded in too large accounts receivable will result in decreased liquidity
and profitability.
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In addition, the study conducted by Sola, Solano & Teruel (2013) entitled “Trade credit
and SME profitability”, discovered a positive linear relationship between trade credit
investment and firm profitability, given the fact that the benefits of trade credit outweigh the
costs of vendor financing. The objective is to provide empirical evidence of the impact of trade
credit on profitability in a sample of Spanish manufacturing SMEs from 2000 to 2007. It
showed that trade credit is more profitable for firms with variable demand than it is for firms
with stable demand. In this way, trade credit could be used to smooth demand, lowering
operating costs and boosting firm profitability. The findings highlighted the importance of trade
credit as a determinant of SME profitability and provide valuable insights for academics and
managers, as the findings suggest that increasing SMEs' investment in trade credit may improve
their profitability, particularly in the case of financially unconstrained firms, firms with volatile
demand, and firms with a larger market share. Moreover, higher investment in trade credit than
the industry means increases firms’ profitability.
However, the study conducted by Kumari & Anthuvan (2017) entitled “A study on the
Impact of Receivables management on Profitability of leading listed manufacturing sectors at
Chennai for a period of 2006-2012”, found that there is negative correlation exists between
debtor’s collection period and net operating profitability. The study's goal was to investigate
the impact of receivables management efficiency, as measured by debtor conversion period, on
Net Operating Profitability of various firms in the selected 15 industries. The findings showed
a statistical relationship between the conversion period of debtors and the profitability of the
selected sectors. The study stated that receivables management is the key aspect to be analyzed
in order to increase the profitability of the organization. The findings confirm that most sectors
20
have a significant relationship, implying that a firm's receivables or trade credit policy will
increase the efficiency of organizational performance. To increase the effectiveness of
profitability, sectors should improve and review strategies such as credit policies and reminder
procedures on a regular basis. Day to day follow-ups and review of yearly policies will enhance
the organizational performance. To avoid financial distress, future research should place a
special emphasis on the surveyed areas for medium and small-sized businesses. When they
focus on receivables rather than factoring and outsourcing them to various consultancies, they
can develop better management with good cost control tools. This is something that could be
looked into for future research on SMEs.
However, the study conducted by Agbo and Nwude (2018) entitled “Impact of Accounts
Receivable Period on the Profitability of Quoted Insurance Companies in Nigeria”, accepted
the null hypothesis, which states that accounts receivable period does not have a significant
positive relationship with the profitability. The paper examines the impact of average collection
period wherein the return on assets and accounts receivable period are the dependent and
independent variables respectively. The sample of the study are the financial reports spanning
from 2000 to 2011 of quoted insurance companies in Nigeria. As a means for finding out the
impact of accounts receivable period on return on assets, taking current ratio, growth size of the
firm, and fixed financial total asset as control variables, the study used regression analysis. The
results show the negative and insignificant impact of accounts receivable period on profitability
wherein they concluded that this unexpected correlation may be due to gaps in managerial
performance. Therefore, the study recommended the management in concentrating effort on
reducing the high variability of accounts receivable period.
21
And in addition, Ksenija (2013) investigates how public companies listed at the regulated
market in the republic of Serbia manage their accounts receivable during recession times. A
sample of 108 firms is used. The accounts receivables policies are examined in the crisis period
of 2008-2011. The short-term effects are tested and the study shows that between accounts
receivables and two dependent variables on profitability, return on total asset and operating
profit margin, there is a positive but no significant relation. This suggests that the impact of
receivables on a firm's profitability is changing times of crisis.
Local Studies
According to the study conducted by Aradanas, Palacio & Suazo (2018) entitled
“Evaluation on the Effectiveness of the Credit and Collection Policies and Practices of Selected
Multi-purpose Cooperatives in Bohol”, indicated that there was a direct relationship between
credit and collection policy practices and the credit and collection measures of the majority of
cooperatives. Using specific evaluation tools, the study aimed to assess the efficacy of credit
and collection policies and practices of selected multi-purpose cooperatives in Bohol. The
study's findings showed that all multi-purpose cooperatives have specific credit policies in place
for credit analysis, credit information, and credit review. The information gathered also
indicated that specific collection practices were always followed in the borrower segmentation
and collection process. The researchers advised cooperatives to increase their rate of expansion
to expand their loan portfolio, consider past due accounts of the borrower when determining
credit risk, and adjust or improve credit and collection policies to reduce non-payment losses.
22
Similarly, the study conducted by Poot (2019) entitled “Credit and Collection Management
Practices, Credit Risk Management, and Financial Performance of Private Higher Educational
Institutions (HEIs) in the Philippines: Basis for Continuous Improvement”, showed that there
was a significant relationship between CCMP and financial performance as to profitability, and
between CRM as to credit risk control and financial performance as to profitability. As a result,
in order to preserve continuity and profitability, credit and collection employees must
collaborate and strive to enhance credit performance through best practices and proper credit
risk management. Thus, a highly significant relationship implied that the better the CCMP, the
better the CRM they employed. The researcher advised HEIs to continue to work together and
exercise excellent CRM in terms of credit and collection policy and credit risk control, and to
hire qualified workers to manage delicate and sensitive tasks with the approval of the Chief
Finance Officer (CFO). Additionally, qualified staff should be assigned to work on the
collection process, with a full focus on billing and collection, as well as a more structured and
streamlined approach to handling customers' databases and tracking receivables.
In line with this, the study conducted by Banta et al. (2017) entitled “Employed Credit Risk
Management by Motorcycle Dealers in Batangas City, Philippines”, demonstrated that
motorcycle dealers used a strict risk analysis and credit collection policy. The researchers chose
this subject because only a few people have been exposed to credit risk management, and they
want to assess the value of credit management in financial institutions. It also aimed to evaluate
how dealers in Batangas City, Philippine’s motorcycle, handled their credit. Customers tend to
be informed personally about the billing process, while dealers prefer to be paid in cash up
front. When it comes to imposing penalties, the repossession of a motorcycle takes precedence.
23
On the other hand, the study conducted by Tan (2014) entitled “Implications of Uncollected
Accounts to Fiscal and Operational Policy: A Case of Realty Corporation”, strongly implied
that receivables were valuable when converted to cash. The larger and older the company's
receivables profile becomes, the more serious a credit management and collection program
must be established. The rate of collection and salvaged profits would increase with successful
account receivable management systems. The study aimed to address the uncollected
receivables of a real estate corporation in Davao City, which had put the company in a difficult
cash position and exposed its financial instruments to liquidity and credit risks for years. As a
result, the researcher suggested that hiring new personnel to handle credit and collection
functions will establish authority and accountability. Finally, a person or unit is designated to
take the lead in developing, implementing, and monitoring the company's credit and collection
system policies, as well as the lease contract's enforcement. Receivables were controlled and
managed at a reasonable size and age when closely monitored in terms of risk category and
payment patterns.
Synthesis
The collections of literature above provide information about the study regarding accounts
receivable management. According to foreign literature, accounts receivable is the process of
collecting payments due for sales from customers who owe them money in exchange for
products or services. As the business expands, managing receivables becomes more complex,
but with proper credit and collection policies, the bad debts ratio can be reduced while
maintaining a healthy cash flow. It is also stated that in order to keep track of receivables, a
24
company must ensure accurate contact information and set payment terms. Local literature, on
the other hand, discussed how to effectively manage, control, and improve accounts receivable.
It also discusses how to reduce credit risk for SMEs in the Philippines, as well as how the
country's global recession forced businesses to innovate in terms of collection efforts.
The collections of studies above are related to accounts receivable management and
profitability of businesses. Most of the foreign studies concluded that there is a positive
relationship between accounts receivable management and firm profitability because it is stated
that firm profitability improves as debtor turnover increases and that too large receivables result
in decreased liquidity and profitability. On the other hand, some of the studies concluded that
there is a negative and insignificant relationship between accounts receivable and profitability.
These results may be due to the gaps in managerial performance (Nwude and Agbo, 2018) and
due to the financial crisis (Ksenija, 2013). A local study, on the other hand, concluded that the
larger and older a company's receivables profile becomes, the more serious a credit management
and collection program must be established. It is also pointed out that in order to maintain
continuity and profitability, credit and collection employees must collaborate to improve credit
performance, and qualified staff should be assigned to work on the collection process in order
to establish authority and accountability.
25
CHAPTER 3
RESEARCH METHODOLOGY
The aim of this chapter is to describe the research processes that were used to carry out the
study. It explains the tools and techniques including research design, description of population,
population data, sample size, sampling method, data gathering procedure, and statistical
treatment that assisted the researchers to come up with new information and fill up the gaps.
Research Design
This study employed the use of the descriptive and quantitative style of research to
determine the perceived impact of accounts receivable management on the profitability of
selected small and medium-sized enterprises. Its aim is to use quantifiable data and statistical,
mathematical, or computational techniques to accurately and systematically characterize a
population, condition, or phenomenon. It can give answers of what, when, where and how
questions, but not why questions (McCombes, S. 2020).
Description of Population
The target respondents for the study are Small and Medium-sized Enterprises in Santa Rosa
Laguna, Biñan Laguna and Muntinlupa which can be regarded as an attractive and massively
innovative system and which is now starting to flourish in our current economy.
26
Since the study is intended to examine how SMEs manage their accounts receivable and
how this affects their profitability, the researchers chose to do the research on businesses who
have accounts receivable or offer credit sales. The proponents of the study believed that SMEs
in Santa Rosa Laguna, Biñan Laguna and Muntinlupa have considerable numbers within the
selected locales and that the data gathered from them will provide a significant amount of data
that will respond to the objectives of the study.
Population Data and Sample size
The target population of the study are registered Small and Medium-sized Enterprises.
However, due to the spread of the coronavirus disease, the researchers achieved their target
number of respondents. Furthermore, the covid pandemic has caused some SMEs to halt
operations and close due to an increase in the cost of supplies, while others have limited their
operations and become more stringent in their transactions, and may refuse to entertain the
researchers due to the risk of contracting covid-19. As a result, the researchers decided to
estimate their population and sample in twenty-five (25) SMEs.
Sampling Method
The study employed the use of Purposive sampling (also known as judgement, selective or
subjective sampling), a sampling method in which researchers choose members of the
population to participate in the sample based on their own judgment. Respondents are selected
based on study purpose with the expectation that each participant will provide unique and rich
27
information of value to the study. It is used to target financial officers from every SME dealing
with accounts receivables.
Data Gathering Procedure
The researchers relied on both primary and secondary data. With the aid of survey
questionnaires generated by the researchers, primary data are collected from the selected Small
and Medium-sized Enterprises in Santa Rosa Laguna, Biñan Laguna and Muntinlupa. The
questionnaires contain closed ended questions in order to obtain the required data from the
sample population. On the other hand, the researchers gathered secondary data by analyzing
literature from the internet, journals, and previous studies in the same field.
In the process of data gathering, first, the researchers introduced themselves, asked for
permission and explained the purpose of the study to the respondents. After approval, the
researchers set a convenient time for the gathering of data from the respondents through google
forms, depending on the respondents' availability. The questionnaires then distributed directly
to the study's sample. The weighted mean, relative frequency and one-way analysis of variance
are used in this study for data analysis and interpretation. All statistical analyses are performed
at a significance level of 0.05.
Hypothesis Testing
The data gathered through questionnaires are observed and analyzed using statistical
methods. The researchers used various hypothesis testing to produce appropriate findings that
are consistent with the hypothesis established in chapter one of this study.
28
Relative Frequency
This is used to calculate the percentage of a set of data. This tool was used by the
researchers in the demographic section of the survey questionnaire.
𝑓
𝑅𝑓 = 𝑥 100%
𝑛
Where:
Rf = Relative Frequency of the data concerned;
f = Frequency of the data concerned;
n = total number of data
Weighted Mean
This is used to obtain useful information from each respondent in relation to the
researcher's Likert-scale questionnaire. The results of using this formula aided the researchers
in obtaining the necessary interpretations on the valuable inputs used to solve the problems.
The formula is shown below (Blay, 2007):
𝑥1 (𝑤1 ) + 𝑥2 (𝑤2 ) + ⋯ 𝑥𝑛 (𝑤𝑛 )

𝑋𝑤 =
𝑤1 + 𝑤2 + ⋯ 𝑤𝑛
Where:
𝑋𝑤 = Weighted Mean of the data concerned;
xn = represents the data considered;
wn = represents the weight of the data considered. In relation, Likert
scale’s assigned numerical value was used as the weights.
29
Interpretation:
1. The result would show where the data would fall under the table shown below.
Furthermore, the researchers would be able to come up with relevant information needed to
formulate the findings, conclusion, and recommendation.
Likert Type Mean Interpretation
Range of Weighted
Interpretation
Mean
1.00 – 1.79 Very Low
1.80 – 2.59 Low
2.60 – 3.39 High
3.40 – 4.00 Very High
One-Way Analysis of Variance (ANOVA). This method is used to compare the significant
difference among groups of data particularly in this study of the effects of accounts receivable
management on profitability as perceived by selected small and medium-sized enterprises in
terms of operation. The procedural formulae are established (Blay, 2007):
1. Total Sum of Squares:
2. Sum of Squares between Columns:
3. Sum of Squares within Columns: SSW = TSS - SSb
4. Total Degree of Freedom: dft = N – 1
5. Between Columns Degree of Freedom: dfb = k – 1
30
6. Within Columns Degree of Freedom: dfw = dft - dfb
7. Mean Sum of Squares Between Columns:
8. Mean Sum of Squares Within Columns:
9. F – Computed:
Where:
N = the number of samples;
FC = the computed value of F;
FT = the tabular value of F;
K = the number of columns;
df = the degree of freedom (Blay, 2007)
Interpretation:
1. When the computed F value is greater than the critical value of F at 0.05 level of
significance then, there is significant difference; however, when the critical value is higher
than the computed F-value then, there is no significant difference among the data
considered relative to the dependent variable of the study.
2. Moreover, when considering the p-value, when the value is less than 0.05 then there is
significant difference, when the value is at least 0.05 then there is no significant difference.
31
CHAPTER 4
RESULTS AND DISCUSSION
This chapter presents the data gathered, the results of the statistical analysis done, and the
interpretation of findings. The analysis of data is based on the results of the questionnaire that
deals with quantitative analysis and interpreted in a descriptive form. These are presented in
tables following the sequence of the problems listed in the statement of the problem.
Business Profile in Terms of Total Value of Assets. Table 4.1 shows the summary of
respondents’ demographic profile in terms of total value of assets. Out of 25 Small and
Medium-sized enterprises, 21 or 84 percent can be classified as small enterprises because their
assets range from 3 to 100 million pesos and 4 or 16 percent of the sample have assets ranging
from 101 - 350 million pesos which can be classified as medium enterprises.
Table 4.1
Business Profile in Terms of Total Value of Assets
Value of Assets Frequency Percentage
Below 3 million pesos 0 0%
3 - 100 million pesos 21 84%
32
More than 350 million pesos 0 0%
TOTAL 25 100%
Business Profile in Terms of Total Value of Liabilities. Table 4.2 shows the summary
of respondents’ demographic profile in terms of total value of liabilities. Out of 25 Small and
Medium-sized enterprises, 24 or 96 percent can be classified as small enterprises because their
liabilities range from 3 to 100 million pesos and 1 or 4 percent of the sample have liabilities
range from 101 - 350 million pesos which can be classified as medium enterprises.
Table 4.2
Business Profile in Terms of Total Value of Liabilities
Value of Liabilities Frequency Percentage
Below 3 million pesos 0 0%
More than 250 million pesos 0 0%
TOTAL 25 100%
Business Profile in Terms of Years of Operation. Table 4.3 shows the summary of
respondents’ demographic profile in terms of total years of operation. Out of 25 Small and
Medium-sized enterprises, 9 or 36 percent falls at the 1 - 5 years of existence followed by 4 or
33
16 percent falls at the 6 – 10 years of existence, 5 or 20 percent falls at the 11 – 15 years of
existence and 7 or 28 percent of the sample exist more than 15 years. The average year of
operation is 1 to 5 years, indicating that the majority of the 25 respondents have been in business
for 1 to 5 years.
Table 4.3
Business Profile in Terms of Years of Operation
Years of Operation Frequency Percentage
1 - 5 years 9 36%
6 – 10 years 4 16%
11 – 15 years 5 20%
More than 15 years 7 28%
TOTAL 25 100%
Business Profile in Terms of Years of Offering Credit Sales. Table 4.4 shows the
summary of respondents’ demographic profile in terms of total years of offering credit sales.
Out of 25 Small and Medium-sized enterprises, 12 or 48 percent falls at the 1 - 5 years of
offering credit sales followed by 3 or 12 percent falls at the 6 – 10 years of offering credit sales,
and 5 or 20 percent falls both at the 11 - 15 years and more than 15 years of offering credit
sales. The average year is 1 to 5 years, indicating that the majority of the 25 respondents have
been offering credit sales for 1 to 5 years.
34
Table 4.4
Business Profile in Terms of Years of Offering Credit Sales
Years of Offering credit Frequency Percentage
sales
1 - 5 years 12 48%
6 – 10 years 3 12%
11 – 15 years 5 20%
More than 15 years 5 20%
TOTAL 25 100%
Level of Strictness of the Credit and Collection Policy Imposed by Selected Small and
Medium-sized Enterprises. Table 4.5 shows that selected Small and Medium-sized
Enterprises' credit policies, as well as their collection policies, have a high level of strictness.
Table 4.5
Level of Strictness of the Credit and Collection Policy Imposed by Selected Small and Medium-
sized Enterprises
Mean Score Standard Verbal

Deviation Interpretation
Credit Policies 3.32 0.75 HIGH
Collection Policies 3.28 0.79 HIGH
Overall 3.48 0.71 VERY HIGH
35
Financial Performance of Selected Small and Medium-sized Enterprises in terms of
Receivable Turnover for the Fiscal Years 2019 and 2020. Table 4.6 shows that the majority
of accounts receivable for selected Small and Medium-sized Enterprises were collected in 2019
and 2020. They have not run out of funds since they have not had to deal with clients when
their payment deadline approaches. Overall, the selected respondents' receivable turnover for
the years 2019 and 2020 is high.
Table 4.6
Financial Performance of Selected Small and Medium-sized Enterprises in terms of Receivable
Turnover for the Fiscal Years 2019 and 2020
Questions Score Verbal
Interpretation
1. Majority of accounts receivable are collected 3.08 HIGH
on time or ahead of time.
2.The company enjoys a high-quality customer 3.08 HIGH
base that is able to pay their debts quickly.
3.The company’s collection of accounts 3.24 HIGH
receivable is frequent and efficient.
4.The company is not experiencing a cash 2.88 HIGH
shortage/ lack of funds as a result of uncollected
receivables.
36
5.The company has a low percentage of bad debts. 2.84 HIGH
6.Collection of Receivables does not exceed the 2.8 HIGH
expected collection period
7.The company is not having trouble dealing with 2.64 HIGH
customers when their due date is near.
8. The collection of receivables by the company 3.24 HIGH
contributes significantly to the company's ability
to maintain a high level of liquidity.
9.The company has a healthy cash flow because it 3.28 HIGH
can collect debts in a short amount of time.
10.The company is doing an adequate job of 3.36 HIGH
collecting debts from slow-paying accounts.
OVERALL 3.12 HIGH
Financial Performance of Selected Small and Medium-sized Enterprises in terms of
Sales for the Fiscal Years 2019 and 2020. Table 4.7 shows that selected Small and Medium-
sized Enterprises' accounts receivable have not decreased significantly in the year 2019 and
2020. However, it did not prevent respondents from experiencing an increase in return on
shareholders' capital, return on invested capital, sales revenue growth, gross profit margin,
operating margin, and net profit margin. Overall, the selected respondents' financial
performance for the years 2019 and 2020 is high.
37
Table 4.7
Financial Performance of Selected Small and Medium-sized Enterprises in terms of Sales for
the Fiscal Years 2019 and 2020
Score Verbal
Questions Interpretation
1. The total current asset represented by accounts 2.44 LOW
receivable has gone down.
2. The business percentage of bad and delinquent debts 2.92 HIGH
is less than 10 percent of sales.
3. The company is experiencing an increase in return on 2.64 HIGH
shareholders’ capital.
4. The company is experiencing an increase in return on 2.68 HIGH
invested capital.
5. The company is experiencing improvement in sales 2.92 HIGH
revenue.
6. Gross profit margin has gradually increased for the 2.92 HIGH
past two years (2019 and 2020).
7. Operating margin has enjoyed steady increase for the 2.8 HIGH
past two years (2019 and
2020).
38
8. There has been a stable increase in our net profit 2.92 HIGH
margin for the past two years (2019 and
2020).
9. Overall, our profitability ratios have steadily 2.88 HIGH
improved for the past two years (2019 and 2020).
10. The company’s profitability has been constantly 2.92 HIGH
above industry average.
Overall 2.84 HIGH
Significant Difference on the Effect of Accounts Receivable Management on Financial
Performance in terms of Receivable Turnover Based on Years of Operation. Table 4.8
shows that there is no significant difference on the effect of accounts receivable management
on financial performance in terms of Receivable Turnover as perceived by selected small and
medium-sized enterprises based on years of operation.
Table 4.8
Performance in terms of Receivable Turnover Based on Years of Operation
39
Years of
Operation and Standard p-value @ Verbal

Mean
Receivable Deviation 0.05 level Interpretation
Turnovers
1-5 Years 2.78 0.67
6-10 Years 3.00 0.82 There is no
11-15 Years 3.40 0.55 0.179 significant
15 years and above 3.43 0.54 difference
Total 3.12 0.67
Performance in terms of Sales based on Years of Operation. Table 4.9 shows that there is
no significant difference on the effect of accounts receivable management on financial
performance in terms of Sales as perceived by selected small and medium-sized enterprises
based on years of operation.
Table 4.9
Performance in terms of Sales based on Years of Operation.
40
p-value
Years of Operation Standard
Mean @ 0.05 Verbal Interpretation
and Sales Deviation
level
1-5 Years 2.67 0.67
6-10 Years 2.50 0.82

There is no significant
11-15 Years 3.00 0.55 0.384
difference
15 years and above 3.14 0.54
Total 2.84 0.69
41
CHAPTER 5
CONCLUSIONS AND RECOMMENDATIONS
This chapter presents the study's summary and conclusions, which investigate the impact
of accounts receivable management on profitability. It also provides recommendations for the
respondents, short-term operating businesses and future researchers to consider.
Conclusion
Accounts receivable management directly impacts the profitability of a company (Kontus,
2013). Hence, establishing a proper and reasonable credit and collection policy are important
to collect credit sales in a timely manner. The purpose of this study is to see if there is a
difference in the impact of accounts receivable management on the profitability of selected
SMEs in Santa Rosa Laguna, Biñan Laguna, and Muntinlupa based on years of operation.
Based on the total value of respondents’ assets and liabilities, it shows that the majority
are Small Entities rather than Medium Entities. It also shows that the majority of them have
been in business and offer credit sales for 1 to 5 years. Thus, the selected respondents of the
study are new businesses that have only recently begun offering credit sales.
Small and medium-sized enterprises in Santa Rosa Laguna, Biñan Laguna and Muntinlupa
were found to have strict credit and collection policies. Thus, selected SMEs are imposing strict
time limits on how long a consumer can pay a debt. They have a clear set of terms, conditions,
42
and standards in place for credit customers, and they thoroughly review collection timelines to
avoid late payments.
Furthermore, selected SMEs' financial performance in terms of receivable turnover shows
that they have a high-quality customer base that is able to pay their debts quickly, and they have
not been experiencing a funding shortage. In terms of sales, it shows an increase in return on
shareholders' capital, return on invested capital, sales revenue growth, gross profit margin,
operating margin, and net profit margin in 2019 and 2020. Thus, even in the midst of a
pandemic, the performance of selected SMEs can be described as strong or excellent.
Relying on years of operation, there is no significant difference in the effect of accounts
receivable management on financial performance in both Receivable Turnover and Sales as
perceived by selected SMEs. Thus, it can be concluded that SMEs have the same impact
regardless of how long they have been in operation.
Recommendations
The following recommendations were drawn based on the results and conclusions of the study:
Since the majority of respondents had strong financial performance in 2019 and 2020, the
researchers recommend respondents to consider maintaining their credit and collection policies
stringent, as this has a positive impact on their profitability, in order to sustain a steady growth
in profitability in the coming years.
Given that the study found that the impact of accounts receivable management on financial
performance is not different for long and short-term operating businesses, the researchers
recommend short-term operating SMEs, especially those that have just started their business,
43
to consider offering credit sales to their customers, as it can be an opportunity for profit growth
and can help them attract customers. The researchers recommend that when implementing
accounts receivable management, strict credit and collection policies be considered, such as
having clear terms, conditions, and standards for credit customers and reviewing collection
timelines on a regular basis. According to Silverstein (2018), when it comes to credit periods,
new customers in some industries might start with a “net 30” standard, allowing them 30 days
to settle their payments before the accounts become delinquent. On the other hand, best
customers may warrant longer payment terms such as 60 to 90 days.
Because of the study's limitations and the pandemic, the researchers recommend that future
studies may include respondents from the same city, making comparisons more relevant if only
one area is used. To also consider respondents from the same type of business to see if there are
any disparities or differences in impact between businesses in the same industry. Different
financial ratios other than receivable turnover may be considered as a determinant of
profitability in future studies.
44
APPENDIX A
SURVEY QUESTIONNAIRE
PERCEIVED IMPACT OF ACCOUNTS RECEIVABLE MANAGEMENT ON THE
PROFITABILITY OF SMALL AND MEDIUM-SIZED ENTERPRISESIN SANTA
ROSA, LAGUNA
Company name: _____________________________________
Job position: ________________________________________
What is the total value of your asset?
☐Below 3 Million ☐101-350 Million
☐3-100 Million ☐More than 350 Million
What is the total value of your liabilities?
☐Below 3 Million ☐101-250 Million
☐3-100 Million ☐More than 250 Million
How long has your company been in operation?
☐1-5 years ☐11-15 years
☐6-10 years ☐More than 15 years
How long has your company been offering credit sales?
☐1-5 years ☐6-10 years
☐11-15 years ☐More than 15 years
45
I. Directions: Read the statements below carefully. Put a checkmark (✓) in the box that
corresponds to your answer. Please do not leave any of the statements unanswered.
Accounts Receivable Management
A. Credit Policies in terms of strictness:
Questions Never Seldom Often Always
1 2 3 4
1. Does your company review the credit
application of customers to determine their credit
worthiness before offering credit?
2. Do you examine customers' payment histories
to determine their ability to pay?
3. Does your company seek references from third
parties?
4. Does your company have credit limits for each
customer?
5. Do you have a lot of terms, conditions, and
standards for credit customers?
46
6. Does your company have a policy to stop
supplying a customer until all debts are cleared?
7. Does your company strictly negotiate payment
terms before an order is taken?
B. Collection Policies in terms of Strictness:
Questions Never Seldom Often Always
1 2 3 4
1. Does your company review collection
timelines?
2. Does your company use ageing sheet and make
constant follow ups?
3. Does your company run regular reports to
identify when payments are due?
4. Does your company run regular reports to
identify slow paying customers and make contact
early to discuss any issues?
5. Does your company issue dunning/ demand
letters to customers?
6. Do you hire internal and external "collectors"
to help you with your collection efforts?
47
7. Do you impose penalties on late payments?
Receivable Turnover and Collection Period
Strongly Disagree Agree Strongly
Questions Disagree Agree
1 2 3 4
1. Majority of accounts receivable are
collected on time or ahead of time.
2.The company enjoys a high-quality
customer base that is able to pay their debts
quickly.
3.The company’s collection of accounts
receivable is frequent and efficient.
4.The company is not experiencing a cash
shortage/ lack of funds as a result of
uncollected receivables.
5.The company has a low percentage of bad
debts.
6.Collection of Receivables does not exceed
the expected collection period
48
7.The company is not having trouble dealing
with customers when their due date is near.
Profitability
Strongly Disagree Agree Strongly
Questions Disagree Agree
1 2 3 4
1. The total current asset represented by
accounts receivable has gone down.
2. The business percentage of bad and
delinquent debts is less than 10 percent of
sales.
3. The company is experiencing an increase
in return on shareholders’ capital.
4. The company is experiencing an increase
in return on invested capital.
5. The company is experiencing
improvement in sales revenue.
6. Gross profit margin has gradually
increased for the past two years (2019 and
2020).
49
7. Operating margin has enjoyed steady
increase for the past two years (2019 and
2020).
8. There has been a stable increase in our net
profit margin for the past two years (2019
and 2020).
9. Overall, our profitability ratios have
steadily improved for the past two years
(2019 and 2020).
10. The company’s profitability has been
constantly above industry average.
50
APPENDIX B
REQUEST LETTER
51
Perceived Impact of Accounts Receivable Management on Profitability of Small and
Medium-sized Enterprises in Santa Rosa, Laguna
Business Permit and Licensing Office
City of Santa Rosa, Laguna
To whom it may concern,
In partial fulfilment for our subject Accounting Research Methods, we researchers, BSA
students of San Pedro College of Business Administration, would like to request the list of
registered Small and Medium-sized Enterprises (SMEs) in Santa Rosa, Laguna to be use for
our study entitled “Perceived Impact of Accounts Receivable Management on Profitability of
Small and Medium-sized Enterprises”.
Rest assured that the information we will collect will only be used for academic purposes.
Respectfully yours,
Researchers,
BARROMA, Dian Irish B.
RABY, Alexander Maxteode R.
TAPAGANAO, Jade D.
San Pedro College of Business Administration
52
APPENDIX C
53
APPENDIX D
54
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%3A-Jindal/95e514d2a318819f166e2923f6ef84e8cdd2e682
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ABLE_MANAGEMENT_ON_THE_PROFITABILITY_DURING_THE_FINANCIAL_CRI
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SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION

Km. 30 Old National Highway, Brgy. Nueva, San

PERCEIVED IMPACT OF ACCOUNTS RECEIVABLE MANAGEMENT ON THE

An Undergraduate Thesis Presented to the

San Pedro College of Business Administration

San Pedro City, Laguna

In Partial Fulfillment of the Requirements for the Degree of

Bachelor of Science in Accountancy

BARROMA, Dian Irish B.

RABY, Alexander Maxteode R.

enumerated. Their contributions are gratefully acknowledged and sincerely appreciated.

and support. Thank you very much!

LIST OF TABLES AND FIGURES

Figure Title Page

4.2 Business Profile in Terms of Total Value of Liabilities 33

4.3 Business Profile in Terms of Years of Operation 34

4.4 Business Profile in Terms of Years of Offering Credit 35

Appendix Title Page

THE PROBLEM AND ITS SETTING

sale of goods or services in the ordinary course of business.

company. Good receivables management directly contributes to a company's profit because it

investments or acquisitions. Furthermore, effective receivables management boosts a

credit and collection policy are important.

operation. Most importantly, to provide and contribute significant research to potential

Background of the Study

accounts receivables. Accounts receivable management is becoming increasingly important,

there is a pandemic and everyone is financially impacted. It is important to collect them in a

affects the firm’s value (KsenijaDenčić, 2013).

good receivables management practices. There was no statistically significant relationship

significant relationship existed between collection efforts, monitoring of receivables, and

strong relationship with profitability.

Statement of the Problem

management on the profitability of selected Small and Medium-sized Enterprises. Specifically,

it attempts to answer the following questions:

1. What is the demographic profile of Small Medium-sized Enterprises in terms of;

a. Total assets and liabilities;

c. Years of offering credit sales?

enterprises in terms of strictness?

fiscal years 2019 and 2020 in terms of;

4. Is there a significant difference on the effect of accounts receivable management on

and medium-sized enterprises based on years of operation?

The researchers formulated their hypothesis at 0.5 level of significance:

1. There is no significant difference on the effects of accounts receivable on financial

medium-sized enterprises based on years of operation.

company are underperforming in terms of operating performance, asset utilization efficiency,

According to advocates of this theory, by reducing the amount of capital invested in

opposite effect on profitability.

researched, surveyed and solved their thesis statement:

efforts and receivables monitoring).

Receivable Management on the Profitability of the respondents.

INPUT PROCESS OUTPUT

Demographic profile 1. The collection of Impact of Accounts

Significance of the Study

profitability of SMEs are significant to the following:

1. To the researchers of the study:

understanding of the subject.

3. To small and medium-sized enterprises planning to implement accounts receivable

their receivables, potentially reducing their start-up failures.

4. To the future researchers:

The study is expected to provide additional literature on accounts receivable management

that future researcher can rely on in their literature review.

customers who have purchased its goods and services on credit.

customers usually make the payment to the company.