THE IMPACT OF ACCOUNT RECEIVABLE IN COMPANIES’ VALUE: A STUDY OF SAUDI COMPANIES (RADWA TRADING COMPANY)

Abstract

This paper has analyzed the impact of accounts receivable in Saudi companies’ value. There is a negative impact on the value of the company when the company has a huge amount in the Account receivables aging system. This problem faced many profitability companies and they failed at the end due to lack of management of Account Receivables (AR). Additionally, this study has used AR aging of Radwa Trading Company as a case study. The results that the company sets credit policy based on the customer category and there is no credit department. The maximum days for wholesalers to pay are 30 days, and for retailers (regional chain and local chain) are 60 days. The company is taking two types of provision: Over one year they take provision over 50% and over two years they take 100% of the total amount as a provision. Economic recession is an external factor that causes an increase in the AR aging days. The company reaches optimal AR management when they increase the average days of payment from 30 to 60 days.