Effect of Debtors’ Management Practices on Growth of Small and Medium Sized Enterprises in Kenya: A Case Study of Hire Purchase Sector in Kenya

Abstract

There are plenty of reasons why SMEs expect growth. There are also many challenges and effects that directly promote or demote growth. The purpose of this study was to determine the effects of Debtors’ Management Practices on Growth in Kenya, with specific interest in the hire purchasing industry. Four specific objectives formed the basis of this study: to investigate the effect of Credit Approval Procedures Practices on Growth, to evaluate the effects of Credit Worthiness Practices on Growth, to assess the effects of Credit Administration Activities Practices on growth and examine the effects of Credit Collection Policy Practices on Growth of hire purchase sector for SMEs in Kenya. Accounts receivable, management theory debtor ranking model and linear-stages-of-growth model were used for the study. Mixed research approach was adopted. The target population comprised all registered hire purchase businesses across different counties in the county. There were 1,187 registered businesses as at 21st August, 2015 but I chose to engage with only four, which were Amedo Centres, Kukopesha Limited, African retail Traders and Kenya Credit Traders. A sample size of 305 was drawn from the target population using Cochran’s formula. Purposive sampling was then employed considering the nature of the hire purchase industry being carried out. Sample branches were selected deliberately by the researcher from the sample size. Both primary and secondary data were collected. The questionnaires were the primary tools used for collection of data where they were self-administered by the researcher and response of 305 was obtained. In analyzing the responses, the Statistical Package for Social Science (SPSS) Version 22.0 was used to present descriptive statistics such as percentages, frequency distributions, measures of central tendencies, measures of variations, correlations, Factor analysis, reliability, ANOVA and other tabulated expressions. Data analysis and interpretation was based on descriptive statistics and measures of dispersion as well as inferential statistics; bivariate and multivariate regression analysis, Pearson correlation, factor analysis and analysis of variance were employed. Multi linear regression model was used in explaining the influence of effects of debtors’ management practices on growth of hire purchase sector for SMEs in Kenya. The study results relatively indicate that credit approval practices, credit worthiness practices, credit administration practices and collection policy activities practices growth, all had significant and positive influence on the growth of family businesses. The study also revealed that there was no moderation effect of these hire purchase sector for SMEs. The study recommends that financial managers should be able to enhance their debtor and credit management practices through acquisition of the credit information to make informed financial decisions. Debtor management practices should be adopted at lower levels to reduce bankruptcy risks, maintain control of the hire purchase sector for SMEs and also control cash spill out to defrauders and loan peddlers as well as planning and controlling business funds and income into viable projects that will increase the value of the firm