Pharmaceutical Manufacturing Companies in Kenya and Their Credit Risk Management Practices

Abstract

The pharmaceutical industry in Kenya consists of manufacturers, distributors and retailers, who all actively support the Ministry of Health and other key players in developing the health sector. Kenya spends about 8% of its GDP on health. Trade credit is created whenever a supplier offers terms that allow the buyer to delay payment. This study aimed at to identifying the credit risk management practices adopted by pharmaceutical manufacturing firms in Kenya. The study found out that the two most important factors considered in establishing a credit policy are the financial stability of the customer and the existing credit policy. Majority of the firms do not have a credit policy manual. The most widely used credit risk management practices are use of debt collectors letters of credit, credit insurance and factoring of debt  in that order. In dealing with difficult to pay customers nearly all firms put the account on hold and stopped future sales till the account was settled, (80%) engaged services of debt collectors, (43%) resorted to selling on cash basis. The 6C’s model of credit appraisal was widely used.

Key words: credit risk, credit risk management, pharmaceutical firms