An Investigation of the Credit Management Practices in Manufacturing Industries: a Case Study of East African Portland Cement Company Limited

Abstract

The aim of the study is to investigate current credit management practices in EAPCC. Credit management has established itself worldwide as a vital management function, contributing to the economic well being of organizations of all kinds. Efficient credit management, with its crucial impact on cash flow, can make the difference between survival and insolvency in the private sector, or between cost effective and wasteful administration in the public sector. Effective management of accounts receivable therefore presents important opportunities for organizations to achieve strategic advantage through improvements in customer service, cash management and reduction in costs. This research is a case study and the method has been chosen because it enables the researcher to probe and obtain an in-depth understanding of a particular phenomenon. Data collection instruments were questionnaires, annual reports and financial statements on record. Primary data was collected using questionnaire face–to-face interview, where all the issues on the questionnaire were addressed whereas secondary data was collected from annual reports and financial statements on record.The data analysis technique has been aligned to meet the objective of the study to determine the nature of the relationship between credit sales and bad debts and an accept/reject decision for EAPCC to grant credit facilities. The annual average debtors aged 30 – 60 days and aged 60 – 90 days each have a positive correlation with bad debts. This means that the longer it takes to collect receivables, the higher the likelihood of bad debts. From the results, conclusions were drawn on the effectiveness of the credit management at the EAPCC.