Effect of Credit Management on Firm Profitability: Evidence Savings and Credit Co-Operatives in Kenya

Abstract

The purpose of this study is to examine the effects of credit management (CM) on the firm’s profitability.The study used explanatory research design to establish causal effects of credit management on the firm profitability. The study targeted all the Sacco’s within Uasin Gishu County. The study employed structured questionnaires as the instruments for data collection. Data was analyzed and presented with the aid of statistical package for social sciences (SPSS), which provided descriptive and inferential statistics. The findings indicated that credit debt collection, credit risk assessment, credit granting decision, credit debt collection and credit policy play an important role in improving firm profitability. Thus management needs to put in place sound credit management to prevent late payment by debtors hence an increase in profitability. It is also prudent for the management of SACCOs to ensure an efficient credit policy and also give assurance to the stakeholders on the SACCOs ability to meet its financial obligations as when due either in favorable or unfavorable economic conditions. The study affirmed a strong support for the argument that credit granting decision affects firm profitability at a high rate and thus management should be willing to implement it in order to increase financial viability. SACCOs should ensure that debts are paid in time so that they cannotface financial constraints due to bad debts.