The effect of credit management on financial performance of small and medium enterprises

Abstract

The purpose of this study was to establish the effect of credit management on financial performance of small and medium enterprises. Mbarara Central market in Mbarara municipality was the case study for the research. The independent variable was credit management and the indicators that were used to measure it are; credit policy, credit period and collection policy. The dependent variable was financial performance and the indicators included sales volume, profitability and liquidity. The specific objectives for the study were; to examine the impact of credit policies on the financial performance of small and medium enterprises, to evaluate the impact of credit period on financial performance of SMEs and to examine the effect of collection policy used by SMEs on financial performance of the enterprise. The study used a case study design, study population was small and medium enterprises in Mbarara central market, sample size was 50 and sampling techniques used included simple random sampling and purposive sampling. The methods used to collect data from the field were questionnaires that contained closed end questions. SPSS data editor was used to compile the data obtained from the field. The data was analyzed by use of codes and correlation to find out the effect of credit management on financial performance of small and medium enterprises. The data was put into tables and mean, standard deviation and Pearson’s correlation product technique were used to analyze the data. The findings indicated that there is a positive effect that credit period has on the financial performance of small and medium enterprises, collection policy relatively affects the financial performance of SMEs and credit policy strongly influences the financial performance of SMEs