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Effect of Accounts Receivable Turnover on the Profitability of Listed Companies in Nigeria

Abstract

Accounts receivable turnover is an important working capital management indicator because it reflects how efficiently a company manages credit sales and collects outstanding amounts from customers. Accounts receivable turnover measures the frequency with which a company converts its receivables into cash within a given accounting period. Efficient management of accounts receivable enables companies to maintain adequate liquidity, reduce the risk of bad debts, minimize financing costs, and support continuous business operations. Profitability, on the other hand, represents the ability of a company to generate earnings from its available resources and business activities. In Nigeria, listed companies operate in an economic environment characterized by inflation, exchange rate volatility, declining purchasing power, increased operating costs, and changing market conditions. These factors may affect customers' ability to settle outstanding obligations and consequently influence companies' collection periods, liquidity positions, and profitability. Effective credit management and receivables collection have therefore become increasingly important for listed companies seeking to preserve cash flows and maintain sustainable earnings. Regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) promote financial reporting, accountability, and sound financial management practices among listed companies. Despite these requirements, companies may experience prolonged collection periods, high levels of overdue receivables, customer defaults, and increasing impairment losses, which can adversely affect financial performance. Although previous studies have examined working capital management and profitability, empirical evidence regarding the effect of accounts receivable turnover on the profitability of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of accounts receivable turnover on the profitability of listed companies in Nigeria. The study is anchored on Working Capital Management Theory, the Cash Conversion Cycle Theory, and the Resource-Based View (RBV). Working Capital Management Theory emphasizes the importance of efficiently managing short-term assets and liabilities to maintain liquidity while maximizing profitability. The Cash Conversion Cycle Theory explains that efficient collection of receivables shortens the period between the initial investment in operations and the recovery of cash, thereby improving liquidity and reducing the financing requirements associated with working capital. The Resource-Based View suggests that effective receivables management constitutes an organizational capability that can improve resource utilization, strengthen competitive advantage, and enhance profitability. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between accounts receivable turnover and profitability of listed companies in Nigeria. The study adopts a quantitative research design using a structured questionnaire administered to chief financial officers, finance managers, accountants, financial controllers, credit managers, treasury managers, internal auditors, external auditors, and other personnel involved in credit and working capital management within selected listed companies in Nigeria. A stratified random sampling technique will be employed to ensure adequate representation of companies operating in the financial services, manufacturing, consumer goods, industrial goods, oil and gas, telecommunications, agriculture, healthcare, and other sectors listed on the Nigerian Exchange Group (NGX). Accounts receivable turnover will be measured using receivables turnover ratio, average collection period, credit collection efficiency, overdue receivables management, receivables aging, and bad debt management, while profitability will be measured using Return on Assets (ROA), Return on Equity (ROE), net profit margin, operating profit margin, earnings per share, and profit growth. Primary data collected from respondents will be analyzed using descriptive statistics to summarize respondents' demographic characteristics and perceptions regarding accounts receivable turnover and profitability. Structural Equation Modeling (SEM) will be employed to examine the effect of accounts receivable turnover on profitability. The measurement model will be evaluated using Cronbach's Alpha, Composite Reliability (CR), Average Variance Extracted (AVE), and Confirmatory Factor Analysis (CFA) to establish the reliability and validity of the research instrument. Additional diagnostic tests, including multicollinearity assessment, common method bias analysis, and model fit indices such as the Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR), will be conducted to ensure the adequacy, consistency, reliability, and robustness of the structural model. The study anticipates that effective accounts receivable turnover will have a significant positive effect on the profitability of listed companies in Nigeria. Efficient collection of receivables is expected to improve cash flow availability, reduce the amount of funds tied up in credit sales, minimize bad debt exposure, lower working capital financing costs, and strengthen overall liquidity. Companies with efficient receivables management are also anticipated to improve their ability to finance daily operations, meet short-term obligations, undertake profitable investments, and maintain stable business activities. Furthermore, faster and more effective receivables collection is expected to reduce the risk of impairment losses and enhance operating efficiency, thereby contributing to higher profitability. Conversely, slow accounts receivable turnover, prolonged collection periods, weak credit policies, and increasing customer defaults may restrict cash flows, increase financing costs, create liquidity pressures, and reduce profitability. Consequently, effective management of accounts receivable is expected to contribute significantly to improving liquidity, operational efficiency, and sustainable profitability among listed companies in Nigeria. This study is expected to make significant theoretical and empirical contributions to the literature on working capital management, accounting, corporate finance, and financial performance by providing comprehensive evidence on the relationship between accounts receivable turnover and profitability of listed companies in Nigeria. Unlike previous studies that broadly examined working capital management or liquidity, this research specifically evaluates accounts receivable turnover as a determinant of corporate profitability using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for listed companies, financial managers, accountants, auditors, investors, the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), the Nigerian Exchange Group (NGX), professional accounting bodies, policymakers, regulators, and academic researchers regarding the importance of efficient receivables management. The study will also provide evidence-based recommendations for strengthening credit policies, improving customer credit assessment, enhancing collection procedures, strengthening receivables monitoring, reducing overdue accounts, minimizing bad debts, and improving cash flow management to promote sustainable profitability among listed companies in Nigeria.

Keywords: Accounts receivable turnover, profitability, listed companies, working capital management, credit management, liquidity, cash conversion cycle, receivables management, Structural Equation Modeling (SEM), Nigeria.