Receivables Management and Financial Performance of Kenya Tea Development Agency Factories in Kericho County, Kenya
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Date
2024-11
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Publisher
Kenyatta University
Abstract
Kenya’s tea industry is experiencing declining profits, significantly impacting the livelihoods of tea growers and the financial stability of the Kenya Tea Development Agency (KTDA). From 2014 to 2021, KTDA's profitability decreased by 14%, from Ksh 2.07 to Ksh 1.78 per kilogram, primarily due to high production costs, cash flow issues, credit losses, and poor receivables management. The purpose of the study was to evaluate the effect of receivable management on financial performance of Kenya Tea Development Agencies factories within Kericho County. Where specific aims are to establish the influence of receivables collection efficiency, to establish the effect of credit policy and to evaluated the outcome of Cash Conversion period on the financial performance of Kenya Tea Development Agencies factories within Kericho County. The study was based on the transaction cost economic quantity, agency theory and operational cost theory. Descriptive survey research design was adopted where annual financial report was collected from seven Kenya Tea Development Agencies factories between the period 2013 to 2022. Where a sample of 70 records were collected from secondary records obtained from the seven factories. The root information source was the published materials which was extracted by data extraction tool. Standard deviation and mean were utilized as descriptive analysis while panel regression analysis technique was used as inferential statistics analysis to analyze data in a manner that form a trend analysis enabling the assessment of receivables management and financial performance. Multi-collinearity, homoscedasticity, autocorrelation, normality and unit root was tested before using multiple panel regression. The statistics was illustrated using table and charts. The results revealed that over the past decade receivable collection period have declined. The study revealed that receivable collection efficiency had negative significant effect on financial performance (P<0.05). Similarly, the credit policy has also declined for the past ten years by half. The credit policy had positive significant influence on the financial performance (P<0.05). Finally, the study found that stock turnover had declined from 6 months to 3 months which have enable the firms reduce credit policy. Therefore, cash conversion period had negative significantly influence on the financial performance (P<0.05). The study concluded that receivable management had significant influence on the financial performance of firm where receivable collection and cash conversion periods had negative significant relationship while credit policy had positive significant relationship with return on asset. The study recommended that firm should be able to reduce the receivable collection period and cash conversion period while increase credit policy. Secondly, strategies should be in place to mitigate the effect of external factors on account receivable. The study would be significant to KTDA factories as it set strategies in receivable management that improve financial performance of the firm. It would assist in developing necessary policies that would govern credit policy in this firms.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University, November 2024.
Supervisor
Joseph Theuri