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Effect of Payables Turnover on the Profitability of Listed Companies in Nigeria

Abstract

Payables turnover is an important working capital management indicator that measures how efficiently a company manages its trade payables and settles its obligations to suppliers within an accounting period. It provides insight into a company's payment practices, supplier relationship management, short-term financing position, and utilization of supplier credit. Profitability reflects the ability of a company to generate earnings from its business operations and available resources. Effective management of accounts payable can enable companies to preserve cash, optimize working capital, maintain favourable supplier relationships, and reduce unnecessary financing costs, while excessively rapid payment of suppliers may reduce the benefits of trade credit. Conversely, very slow payables turnover may improve short-term liquidity but can lead to late-payment penalties, weakened supplier relationships, supply disruptions, and loss of favourable credit terms. In Nigeria, listed companies operate in an economic environment characterized by inflation, exchange rate volatility, high interest rates, rising operating costs, supply chain disruptions, and changing business conditions. These factors have increased the importance of effective working capital management and the efficient utilization of supplier financing. The ability of companies to appropriately manage their payment obligations may therefore influence their liquidity, operational efficiency, and profitability. Regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN), the Securities and Exchange Commission (SEC), and the Nigerian Exchange Group (NGX) promote sound financial reporting and corporate governance practices that enable stakeholders to evaluate the financial position and performance of listed companies. Despite these regulatory efforts, differences in supplier payment practices and working capital policies may contribute to variations in corporate profitability. Although previous studies have examined working capital management, trade credit, and corporate financial performance, empirical evidence regarding the effect of payables turnover on the profitability of listed companies in Nigeria remains limited and inconclusive. Against this background, this study investigates the effect of payables turnover on the profitability of listed companies in Nigeria. The study is anchored on Working Capital Management Theory, Cash Conversion Cycle Theory, and Trade Credit Theory. Working Capital Management Theory emphasizes the importance of maintaining an appropriate balance between current assets and current liabilities to achieve liquidity and profitability. Cash Conversion Cycle Theory suggests that effective management of accounts payable can influence the length of the operating cash cycle and the amount of cash tied up in business operations. Trade Credit Theory explains that supplier credit can serve as an important source of short-term financing, enabling firms to acquire goods and services without making immediate cash payments. Collectively, these theoretical perspectives provide a comprehensive framework for explaining the relationship between payables 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, management accountants, financial controllers, treasury managers, procurement managers, accounts payable officers, internal auditors, external auditors, and other professionals involved in financial 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). Payables turnover will be measured using the frequency of supplier payments, accounts payable turnover ratio, average payment period, efficiency of supplier payment management, utilization of trade credit, management of outstanding supplier obligations, and adherence to agreed payment terms, 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 payables turnover and profitability. Structural Equation Modeling (SEM) will be employed to examine the effect of payables 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 payables turnover will have a significant effect on the profitability of listed companies in Nigeria. Effective management of payables is expected to enable companies to optimize the use of supplier credit, preserve cash for productive activities, and reduce unnecessary dependence on short-term external financing. Appropriately managed payment periods may allow companies to retain cash within the business for longer periods while still maintaining strong relationships with suppliers. This can improve working capital efficiency and potentially enhance profitability. However, excessively rapid payables turnover may reduce the benefits of trade credit and place unnecessary pressure on corporate cash flows, while excessively slow payables turnover may result in late-payment penalties, damaged supplier relationships, reduced access to supplier credit, and interruptions in the supply of essential goods and services. The study therefore expects that effective payables management and an appropriately managed payables turnover level will contribute significantly to profitability by improving cash management, reducing financing pressures, and supporting uninterrupted business operations. This study is expected to make significant theoretical and empirical contributions to the literature on working capital management, management accounting, trade credit, and corporate profitability by providing comprehensive evidence on the relationship between payables turnover and profitability of listed companies in Nigeria. Unlike previous studies that broadly examined working capital management or the cash conversion cycle, this research specifically evaluates payables turnover as a determinant of profitability using primary data and Structural Equation Modeling (SEM). The findings will provide valuable insights for listed companies, financial managers, management accountants, procurement managers, treasury officers, auditors, investors, suppliers, 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 effective accounts payable management. The study will also provide evidence-based recommendations for improving supplier payment policies, optimizing the use of trade credit, strengthening cash flow planning, maintaining favourable supplier relationships, reducing unnecessary financing costs, and achieving an appropriate balance between liquidity and profitability among listed companies in Nigeria.

Keywords: Payables turnover, profitability, listed companies, accounts payable, working capital management, trade credit, cash conversion cycle, supplier credit, liquidity, Structural Equation Modeling (SEM), Nigeria.