The Minimization of Accounts Receivables in the Water and Sewerage Department of Nairobi City Council Using the Credit Scoring Technique

Abstract

This study sought to assess the willingness to pay rather than ability to pay of the domestic clients of the Water and Sewerage Department of the Nairobi City Council (WSDINCC). The willingness to pay concept also referred to as creditworthiness. Ten characteristics were employed as the independent or predictor variables to determine the credit scores (dependent variable) of the WSDINCC domestic clients. The characteristics used were: employment status of the client; seniority of the position held in the work place; time spent by the client with current employer; industry in which the he or she is employed; ownership of the current residential house; time spent in that house; marital status and age of the client; the number of dependants of the client and the education background .. The domestic clients whose accounts receivable balance exceeded the bill representing a credit period of ninety days were classified as un-creditworthy, while those clients whose balance was less than the bill representing a credit period of ninety days were classified as creditworthy. This information was obtained from the credit records of the WSDINCC. The study used discriminant analysis statistical method to develop a credit-scoring model which utilized the ten independent variables above to predict the credit scores of the domestic clients. .. The results of the prediction process indicated that the credit-scoring model developed was able to correctly predict the creditworthy clients by 62.6% and the un-creditworthy clients by 68.9%.