Enhancing financial efficiency and receivable collection in the water sector: Insights from structural equation modeling

Abstract

This research aimed to identify the factors influencing the water sector's financial efficiency and receivable collection. Financial efficiency is measured using the financial efficiency ratio (FER), which is obtained by dividing the operating cost of the water service by the revenue generated from it. The receivables collection ratio (RCR) is calculated by dividing the total fees collected from water customers by annual water billed sales. The study utilized secondary data from 260 water providers and employed structural equation modeling. The analysis revealed that using prepaid meters, ensuring water continuity, employing dunning actions, adhering to tariff compliance, and offering various payment methods positively influenced the receivables collection ratio. However, while all of these factors have a significant impact, the effect of payment discounts was not statistically significant. Additionally, the study uncovered that using prepaid meters, ensuring water continuity, employing dunning actions, and adhering to tariff compliance negatively impacted the financial efficiency ratio. This finding implies that these factors could improve water providers' financial position. The study suggests that using prepaid meters, ensuring water continuity, employing dunning actions, adhering to tariff compliance, and offering various payment methods can reduce costs relative to revenue and enhance the collection of receivables. Ultimately, these actions can strengthen water providers' overall financial performance.