Relationship between prepaid billing system and working capital management at kenya power and lighting company

Abstract

Prepaid billing system is a system of “pay as you use”; a system of buying/selling electricity before use. This system does not limit itself with prepayment meter only; rather it is a complete different system of revenue cycle management from “meter to cash” cycle. This study was therefore conducted to establish the relationship between prepaid billing system and working capital at KPLC. A case study design was adopted which used secondary data obtained from financial statement for the three years covering 2009 to 2012. Data analysis was done by use a regression analysis.The study established that there exists both negative and positive relationship. The empirical results shows prepaid billing has significant negative relationship with average collection period. This is because the prepaid billing system is a primarily way of assisting firms to collect revenue and reduce debt. Average payment period and cash conversion cycle was found to have negative but non-significant relationship with prepaid billing system. Some empirical findings conflicted theoretical and general expectations: the finding of this study found that there was a positive non-significant relationship in regard to inventory turnover in days. The study recommends that initially, prepaid billing should be introduced as means of revenue collection or debtor management until a significant number is achieved when their relationship with other working capital element such as average payment period and cash conversion cycle can be perfected.