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CHAPTER I
THE PROBLEM AND ITS SETTING
Introduction
In everyday living, Everyone deals with money. It becomes part of the system
thought for the moralitys stake it should not be. In anything or any experience that they
do not want to miss, there is always a value in return. Money is vital in entering into
economic transactions with other people to have something either tangible or intangible,
it is the most important resource of any business organization. Without money, there are
no businesses at all. Money is needed to start a business, it is needed to sustain
activities like production and other services. The money is the starting point of a
business, and business plays an important role in the economy of every place. A
business will not work without money, but in order to continue the operation of a
company the firm must also earn revenue. For a business, its primary source is revenue
from the operations of the company. Receivables, also termed as trade credit or debtors
are component of current assets. When a firm sells its product in credit and starting to
earn a revenue, revenues will be accounted already as receivables of the firm.
Accounts receivable are the money receivable in some future date for the credit sale
of goods and services at present. These days, most business transactions are made on
credit. Most companies, when they face competition, use credit sales as an important
tool for sales promotion. As a sales promotion tool, credit sale enhances firm's sales
revenue and ultimately pushes up the profitability. But after the credit sale has been
made, the actual collection of cash may be delayed for months. As these late payments
stretch out over time, they may cause substantial drop in a company's profit margin.
Since the extension of credit involves both cost and benefits, the firm's manager must be
able to measure them to determine the ultimate effect of credits sales.1

In this prospective, we define the receivable management as the aspect of a firm's

current assets management, which is concerned with determining optimum credit policy
associated to a firm, such that the benefit from extension of credit is greater than the
cost of maintaining investment in accounts receivables.
Unfortunately effective management of the process is still often wrongly
seen as being part of accounting and therefore as a cost center. Many
organizations view collections as a necessary evil designed to protect against
bad debts.

In actual collections should be an integral part of the sales

process; helping establish an initial framework for a long and mutually

beneficial relationship between the management and the patients and
completing the final step in the sale-to-cash cycle.2 If viewed from this
perspective, collections practices becomes a sales enhancement function and
a profit center, not an administrative cost center that inhibits the sales
process.
Receivable management is a fundamental part of Customer Relationship
Management and you must apply payment pressure in line with a formal
strategy rather than just trying to be tough on every customer. Many software
companies have risen to provide medical billing software to this profitable
segment of health market to increase the level of effectiveness in managing
receivables. Receivable management practices can make or break any
business. It may sound like a strong statement, but over and over it proves to
be true. Businesses that have effective policies and practices usually have a
much healthier bottom line, and thus have a much better survival rate in
todays competitive market. The receivable management practices of the
company when tailored to their strategic objectives, culture and industry will

enable excellence in receivables management in all of its dimensions. This

excellence will deliver the profit and cash benefits available to the company. 3
The effective management of receivables does not only refer to
increasing revenue, enhancing customer satisfaction or reducing expenses. It
could result to benefits such as increased cash flow, higher credit sales and
margins, reduced bad debt loss , decreased deductions, enhanced customer
service or decreased administrative burden on sales force. 4
Nowadays, almost every water utility service provider here in the
Philippines already used advanced technology in their billing system which
help them a lot in processing all the consumers information that will be used
in the collection process. But despite the advancement of the billing system
they used, still they face a lot of problems and challenges on collecting bills
on their consumers that become a hurdle in the effectiveness of their
managing receivables. Billing the consumers is the first step in the
revenue/receipt cycle of the hospital. The billing field of has been challenged
in recent years due to several factors affecting the billing system that also
affects the collection process of the water utility. Thats why it is important to
know the flow of the water utility billing system, to assess the level of its
effectiveness, and to know the problems affecting its current billing system so
that the result will be used for improvement of collection process.5
Daraga Water District was formed in 1982 to take over the management
and oeration of the system of National Waterworks and Sewerage Authority
that was abolished that time too. The water sources of DAWD comprise of
springs and shallow wells situated on the lower slope of Mayon Volcano
together with a pumped spring source closer to the municipality. The sources

adjacent to the volcano are at an elevation which permits gravity flow to the
municipality and are therefor not susceptible to brown outs in the area. Due
to the limited catchment of area, the output from these resource is very
variable. Treatment of sourced water is by hypo chlorination which is
undertaken at each of spring and well source. There is no further treatment
other than aeration to a small percentage other output from the volcano area
as it enters s storage tank at Busay, Daraga, Albay.
Statement of the Problem
The primary objective of this study is to determine the receivable
management practices of Daraga Water District. Specifically, it seek to
answer the following questions:
1. What are the receivable management practices of Daraga Water
District in terms of:
1.1 Billing
1.2 Collection?
2. What are the problems encountered by the Daraga Water District along
with the aforecited variables?
3. What are the viable recommendations maybe suggested to enhance
the problems encountered in managing receivables of Daraga Water
District ?

Scope and Delimitation

This study focused on determining of the existing receivable management practices
of DAWD for commercial sectors of the year 2013. This study also measured the
receivable management of Daraga Water District in terms of billing, and collection.

Furthermore, it also determines the problems encountered by the water district and
recommendations to the problems identified.
This study is limited only to Receivable Management and it will not tackle the effect
on the profit of the said water district.
Significance of the Study
This study is considered significant because the findings of the study may
provide an overview of the current receivable management practices and
recommendations that are relevant to the present billing & collection
practices of Daraga Water District. This study is important to the following:
Management of DAWD. This study will give the management and
decision bodies an overview of the current practices regarding the receivable
management. The result of this study would be of assistance to improve the
quality or practice and service provided by the company.
Employees. Through this research, the employees will be informed and
understand the status of the receivable management of Daraga Water District
Municipality of Daraga. This study may provide the municipality
information that will help them respond to the needs of its society concerning
public utility.
Consumers. This may provide them general understanding of their
involvement with the society which will strengthen the functions of the top
cooperative towards the attainments of their objectives and will give them
insights about the receivable management by DAWD.
Local Water Utilities Administration. They can gain useful data in
coming up with programs and laws that are more responsive to the condition,
needs and issues revealed in this study concerning public utility.

Academe. The result of this study will educate and inform the academe
and will help them understand the status of the receivable management in
Daraga Water District.
Present and Future Researchers. The result of this study will give
more ideas, experience and knowledge to improve their skills and it will give
them information that will help the present and future researchers and
become future reference to understand the receivable management of
hospitals and help them to become more effective and efficient in
accomplishing their work.

Notes

Accounts Receivable sourced at http://accountlearning.blogspot.com/ accessed on

November 23, 2014

2

History of Collection: sourced at www.accountinglibrary.com accessed on November 23,

2014
3

Fortune, Special Issue, vol. 149, no. 7 (April 5, 2004), pp. F1-F20

Salek, John G., Accounts Receivable Management Best Practices, John Wiley & Sons inc.

2005 p.1
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