Credit management policies and financial performance

Abstract

Small and Medium Sized Enterprises apply various techniques and policies in the management of credit. The policies adapted have a significant impact on the profitability, sales growth and liquidity. Small and Medium Sized Enterprises that efficiently apply these policies have an excellent financial performance. This research examines the effects of the credit management policies on the financial performance of SMEs in Kampala district, Makindye division by applying the extent to which credit terms, are applied in these SMEs .The specific objectives of the study were; to establish the relationship between credit terms and financial performance, find out the effects of customer information and analysis on the financial performance, and to determine the effects of cash and receivables management on the financial performance. The research survey was conducted in the SMEs specifically focusing on the period between 2009-2013. Primary data was collected using structured and semi structured questionnaires administered to the respondents in the business firms. Secondary data was obtained from the documents reviews of the businesses and these included the newspapers and magazines. The sample size of 87 respondents was utilized in the study, the sampling methods and techniques that were used in the study are; simple random sampling and purposive sampling. Data collected was analyzed using SPSS and other computer applications and programmes such as micro soft excel. The findings of the study reflected that there is a positive and significant relationship between credit terms and financial performance, customer information and analysis has positive and significant effects on financial performance, cash and receivables management have a positive and significant effect on financial performance. In conclusion the credit management policies have a positive and significant effect on financial performance. The study recommends that large firms with better access to capital markets should extend more trade credit, SMEs must adequately manage their cash and receivables by not letting the receivables outweigh the cash, SMEs should seek as much relevant information as possible about the customers before offering to them goods on credit. In conclusion as per the findings of the study credit management policies have a positive and significant impact on financial performance