Credit Management System and Performance of Private Enterprises in Lira Municipality Case Study Tem Gum Company Limited, Lira Municipality

ABSTRACT 

Credit Management system is a set of policy measures that are designed by each individual business entity to minimize costs associated with extension of credit while maximizing the benefits from it. The purpose of the study is to establish the effectiveness of credit management system in preventing financial resource loss through bad debts. With effect to increase in trade debtors and bad debts, the researcher sought to study and find out the relationship between credit management system and performance of private enterprises. The objectives of the study were to; establish the relationship between credit management system and performance of private enterprises, evaluate the effectiveness of credit standards and screening process of credit applicants and to find out whether there are other factors affecting the performance of Tern Gurni. These objectives were achieved using purposive sampling together with convenience sampling of 40 respondents of which 30 responded. The research was based on primary data collected using questionnaires and interviews and secondary data from already written documents. The findings of the research were that a company allows a grace period of 30 days indicated by 80%(table6).80% agree that credit period extended to applicants is 30 days and 6.67% for cash discount(table7). In establishing the effectiveness of credit standards and the screening process of credit applicants,80% of the respondents indicated that credibility is used(table 8).100% revealed that there is an independent person responsible for screening credit applicants( table 10). The researcher recommended that the company should introduce more cash discounts, seek financial assistance to increase company's scope and scale of operation.

TABLE OF CONTENTS

DECLATION .......................................................................................................................... i

APPROVAL ........................................................................................................................... ii

DEDICATION ....................................................................................................................... iii

ACKNOWLEDGEMENT ...................................................................................................... iv

ABSTRACT ......................................................................................................................... viii

CHAPTER ONE ..................................................................................................................... 1

1.0 Background to Study ......................................................................................................... 1

Table 1: Trade debtors and bad debts ....................................................................................... 3

1.1 Staten1ent of the Problem ................................................................................................... 3

1.2 Purpose of the Study: .......................................................................................................... 4

1.3 Study Objectives ............................................................................................................... 4

1.4 Research Questions: .......................................................................................................... 4

1.5 Scope of the Study ............................................................................................................ 4

1.5.1 Content scope ................................................................................................................. 4

1.5.2 Geographical scope ........................................................................................................ 4

1.5.3 Time scope ..................................................................................................................... 5

1.6 Significance of the Study ................................................................................................... 5

CHAPTER TWO .................................................................................................................... 6

LITERATlJRE REVIEW ........................................................................................................ 6

2.0 Introduction ....................................................................................................................... 6

2.1 The level of credit management system ............................................................................. 6

2.2 level of Performance of Private Enterprises ....................................................................... 8

2.3 Relationship between Credit Management System and Performance in Private Enterprises. 9

2.3.1 Credit standards ............................................................................................................ 10

2.3.2 Credit Tern1s ................................................................................................................ 12

2.3.3 Collection Procedures ................................................................................................... 13

2.3.4 Performance management. ............................................................................................ 15

2.3.5 Private enterprises ........................................................................................................ 20

CI-IAPTER THREE ............ : ............................................................................................... .' .. 21

METHODOLOGY ............................................................................................................... 21

3.0 Introduction ..................................................................................................................... 21

3 .1 Research Design .............................................................................................................. 21

3.2 Study Population ............................................................................................................. 21

3.2.1 Sampling Method and Procedure .................................................................................. 21

3.2.2 Sample Size .................................................................. 21

Table 2: Sample Size ............................................................................................................. 22

3.3 Data Sources and Collection Techniques ......................................................................... 23

3.3.1 Data Sources ................................................................................................................ 23

3.3.1.1 PriinaryData ............................................................................................................. 23

3.3.1.2 Secondary Data ......................................................................................................... 23

3.3.2 Data Collection Techniques .......................................................................................... 23

3. 3 .2.1 Questionnaires ........................................................................................................... 23

3.3.2.2 Interviews .................................................................................................................. 23

3 .4 Data Processing and Analysis .......................................................................................... 24

3.5 Data gathering procedures ............................................................................................... 24

3.6 Ethical consideration ....................................................................................................... 24

3.7 Limitations of the study ............................................................................... : ................... 24

CHAPTER FOUR ................................................................................................................. 26

DATA ANALYSIS AND PRESENTATION ........................................................................ 26

4.0 Introduction ..................................................................................................................... 26

4.1 General Findings ............................................................................................................. 26

Table 3: Number of questionnaires returned and analyzed .................................................... 26

4.1.1 Demographic Data ........................................................................................................ 27

Table 4: Gender response ..................................................................................................... 27

4.1.2 Education Level ........................................................................................................... 27

Table 5: The level of education of the respondents ............................................................... 27

4.2 Relationship between credit management system and performance of Tem Gumi Company limited ..................................... 28

4.2.1 Findings on the grace period extended to clients ........................................................... 28

Table 6: Grace period extended to clients ............................................................................. 28

4.2.2 Credit period and cash discount extended to clients ....................................................... 28

Table 7: Credit period and cash discount allowed to clients .................................................. 29

4.3 Effectiveness of credit standards and screening process of credit applicants ..................... 29

Table 8: Response ~n credit analysis method used ................................................. _. .............. 29

4.3.2 Credit Standards set by the Company ............................................................................ 30

Table 9: Response on Credit Standards Followed .................................................................. 30

4.3.3 Findings on Independent person responsible for screening credit applicants .................. 30

Table 10: The response on independent person responsible for screening credit.. ................... 31

4.3.4 Findings on whether credit can be offered without knowing the client's ........................ 31

Table 11: Response on whether credit can be offered to credit applicant without ................... 31

4.4 Findings on Performance of the Company ....................................................................... 32

Table 12: Showing response on perfom1ance ......................................................................... 32

4.5 Other Factors affecting the Perfo1mance of Tern Gurni Company Limited ....................... 32

CHAPTER FIVE .................................................................................................................. 34

SUMMARY, CONCLUSION AND RECOMMENDATIONS .............................................. 34

5.0 Introduction ..................................................................................................................... 34

5.1 Summary of Findings ...................................................................................................... 34

5.1.1. To establish the relationship between credit management system and performance of Tem Gumi Company Lin1ited ............................. 34

5 .1.2. Investigation on the effectiveness of credit standards and screening process of credit applicants ................................... 35

5.1.3. Other factors affecting the performance ofTem Gumi Company Limited ..................... 35

5.2 Conclusion .............. : ............................................................................................... : ....... 35

5.3. Reconunendations .......................................................................................................... 36

5.4. Areas of further research ................................................................................................ 37

REFERENCES ..................................................................................................................... 38

APPENDICES ...................................................................................................................... 40

APPENDIX I: QUESTIONNAIRE FOR THE FINANCE, ACCOUNTS AND ..................... 40

APPENDIX II: INTERVIEW GUIDE FOR THE MANAGEMENT OF PRIMEX ................ 45

APPENDIX II: PROPOSED BUDGET .......................................................................................... 47

APPENDIX N: TIME FRAME ............................................................................................ 48