Management of Accounts Receivables in Utility Companies: A focus on Electricity Company of Ghana (E.C.G.)

Abstract

Almost all standard textbooks on Accounting: Managerial and Financial discuss accounts receivable in varying degrees of depth and scope emphasis skewed towards the particular discipline. Financial accounting discusses accounts receivable as information for external users to use to interpret financial statements (Libby; et aI (2001) managerial accounting discusses accounts receivable as a cost to management (Hilton, 2002). Financial management, however, discusses accounts receivables as a current asset requiring short-term investment and financing strategies (Brealy; Myers (2000).This study's objective was to determine the effectiveness of the management of accounts receivable by Electricity Company of Ghana. The study analyzed secondary data from the audited annual reports of the company for a period of four years from 2007 to 2011; the company's billing system, operational reports and primary data from both structured and unstructured questionnaire. The results show that Electricity Company of Ghana has an average accounts receivable days' sales outstanding of 158 days over the study period and unrealistic provision for bad debt of about 5%. The study's conclusions indicate that the company is not very effective in its accounts receivable management. The study, therefore, recommends that the company's business processes should be reviewed, finalised accounts with balances over 150 days be declared bad debts and managed separately from the net realizable accounts receivable.