An Evaluation of the Effectiveness of Debtors’ Management Systems: a Case Study of Puzey and Payne

Topics: Debt, Balance sheet, Debtor Pages: 7 (1730 words) Published: January 3, 2013
AN evaluation of the effectiveness of debtors’ management systems: -------------------------------------------------
A CASE study of puzey and payne


1.0 Introduction

This chapter briefly provides the background of the study on the effectiveness of debtors’ management systems at Puzey and Payne, Harare. In this chapter, the researcher rationalized the topic, clarified the objectives, research questions, significance of the study, delimitations and limitations of the study as well as the background leading to the study.

1.1 Background to the Study

Puzey and Payne realizes its profits from cash and credit sales of motor vehicles and spare parts and servicing of motor vehicles. In the current turbulent economic environment, the company suffers the consequences of debt defaults since the greatest percentage of the company’s sales are on credit basis. The company reduced the debt payment period from 30 to 70 days. Debtors were failing to meet their due dates and as a result the company was encountering cash shortages which posed a negative impact on the company’s operations. In the current dollarized economy, Puzey and Payne was failing to realize profits since most of its debtors were failing to settle their arrears on time. Defaulting debtors and long term debtors’ turnover have also affected the company’s relationship with its own creditors since the company was failing to pay its debts on time. Defaulting debtors caused a stand still on the profitability of the organization. Long term debtors’ turnover forced the company to operate on overdraft, which attracted high interest rates thereby reducing the company’s profits. Puzey and Payne has lost much of its business to its rivals such as Clover Leaf Nissan Motors, Amalgamated Motors Corporation and Amtec just to mention a few due to a poor debtors’ management systems (National Credit Rating-NCR 2009).

Following frequent customers’ late payments and shrinking market share experienced by Puzey and Payne, it became imperative to find ways to get rid of such discrepancies. As a result, the debtors’ management systems were given a chance to test its relevance and effectiveness in addressing poor management of debtors. Poor debtors’ management systems were also characterised by the inability of the organisation to be innovative in establishing new markets. Reduction in sales revenue and operating income also validated the undertaking of this study to prove whether they can be improved or not using effective debtors’ management systems. Following rapid changes in the macro- economic environment, debtors’ management systems used by Puzey and Payne hardly managed to stimulate an equilibrium or consensus on different departmental activities to realise the common goals in the best interest of the shareholders.

Debtors’ management systems were designed as a strategic tool for Puzey and Payne. Fundamentally, organizations with effective debtors’ management systems are finding themselves a step ahead of others in terms of progress and operating on the cutting edge of industry’s technology and other business trends. As a result, it was found necessary to assess whether debtors’ management systems can suitably make an organization realize its profits and plan ahead in the modern day business world.

When the economy was stable Puzey and Payne used to enjoy its profits. The company started to have financial difficulties when the country started to face economic challenges.

1.2 Statement of the Problem

Puzey and Payne has been faced by deteriorating performances in respect of key variables used to assess the performance of the business. This was mainly due to the fact that there were no set policies and regulations governing debtor’s management systems. The imbalances in managing its debtors hinder it from realising common goals of the...
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