Credit Risk Management Policies and Debt Collection Performance by Registered Security Companies in Kenya
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Date
2019-11
Authors
Opiyo, Ernest Otieno
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Security has been and continues to be priority for both life and property world over. Due to the
limitations of public security services the private sector has supplemented provision of security
services. Overtime the registered security firms have come to rely more on establishments that
acquire services purely on credit which often lead to due debts. This has led to large uncollected
debts putting registered security firms into liquidity challenges. If such debts are not efficiently
collected, the company’s operations are adversely affected. Hence, their sustainability and levels
of development basically depend on high cash collections and recovery levels of their bad debts
which have not been the case in this industry. A look in to a number of players in the registered
security industry shows that debt collection management has not been efficient (KSIA, 2015).
Therefore, various policies in credit management and implementation of the debt collection
actions have unquestionable importance. This must be carried out constantly and with the
consistency required. This study sought to assess the effect of credit risk management policies on
debt collection performance by registered security companies in Kenya, in pursuit of offering
solution to these challenges. The specific objectives of the study were to establish the effect of
credit limit, credit approval, credit scoring, credit documentation and credit review policies on
debt collection performance by registered security companies in Kenya. The study was grounded
on the motive theory of credit, credit risk theory and anticipated income theory. The study used
descriptive research design. A census of 38 registered security companies in Kenya was taken.
The study used primary data obtained using structured questionnaires and secondary data
collected using a secondary data template for complimentary purposes. The study employed
multivariate regression model to determine the effect of credit risk management policies on debt
collection performance by registered security companies in Kenya. The mediating effect of
inflation rate was tested using the stepwise regression technique by employing the logic of Baron
and Kenny (1986). The regression results indicated that the credit limit policy had a statistically
insignificant positive association with Days Sales Outstanding (DSO), a measure of debt
collection performance. The study revealed that credit documentation and review policies
improve debt collection performance by registered security companies in Kenya. The study
however found that of credit approval and scoring policies decreases debt collection
performance. The study established that credit limit policy is insignificant to debt collection
performance of the registered security companies in Kenya. The results of Sobel – Goodman
mediation test indicated that inflation had no mediating effect on the relationship between credit
risk management policies and debt collection performance by registered security companies in
Kenya. The study recommends that managers of registered security companies should review
their credit approval and scoring policies in order to improve debt collection performance.
Further it recommended that the Government through recently established Private Security
Regulatory Authority (PSRA) should come up with minimum documentation requirement for
security services acquisition to help improve debt collection performance through complete
documentation of credit transactions in the industry.
Description
A Thesis Submitted to the School of Business in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Science in Finance of Kenyatta University, November, 2019
Keywords
Credit Risk Management Policies, Debt Collection Performance, Security Companies, Kenya