CHAPTER ONE

INTRODUCTION

Background of the Study

Somaliland is an independent self-declared state, which was part of the

Somali Republic located in the Horn of Africa. Having declared its own

government from Somalia since 1991, Somaliland remains unrecognized by

any country. Somaliland lies between latitudes 08°00' and 11°30' north of

the equator and between 42°30' and 49°00' Meridian East of Greenwich. It is

bordered by Djibouti to the West, Ethiopia to the South, and Somalia to the

East. Somaliland has a land area of 137,600 km2 and much of it lies along

the Red Sea. Most people in Somaliland speak the region's two official

languages: Somali and Arabic. They are about 3.5 million in number

(Somaliland constitution, 2009).

In addition to that, there are many manufacturing companies in Somaliland

which sells different product and services; Ilatango manufacturing is one of

those manufacturing companies and it produces different fruit juices for

instance Mango, Pineapple, and apple. It is one of the leading pure fruit juice

brands in the country; it was established in 2000 by a group of people. The

mission of Ilotango manufacturing company is:

"Everything we do is inspired by our enduring mission:

To Refresh the World... in body, mind, and spirit. To Inspire Moments of Optimism... through our brands and our actions.

To Create Value and Make a Difference... everywhere we engage."

Source: Ilotango manufacturing company (department of marketing)

However, Ilotango manufacturing company was experiencing credit problem

nowadays, because 95 % of its products are based on credit which means

that the Ilotango seals its products on credit. Managing accounts receivable 1

effectively and efficiency way is one of the most difficulty tasks under the

managers, because accounts receivable is the second broadest part of

company’s assets after Cash. Managing these accounts effectively will

contribute to the organization to gain high profitability. Secondly, managing

these accounts need to set up effective credit policies, collection procedures,

and effective way to recognize bad debt expenses.

Nowadays, markets for manufacturing companies become very competitive

and many managers used credit grant as marketing strategy though they do

not assesses effectively the effect of this grant to the organizational

profitability.

According to Weygandt, Kieso, and Kell(1996), the term “receivables” refers

to amounts due from individuals and other companies. Receivables are

claims that are expected to be collected in cash. Therefore, receivables are

frequently classified as:

1. Accounts receivable are amounts owed by a customer on account.

They are from the sale of goods and services. These receivables

generally are expected to be collected with in 30 to 60 days, and they

are the most significant type of claim held by a company.

2. Notes receivable represent claims for which formal instrument of credit

are issued as evidence of the debt. The credit instrument normally

requires the debtor to pay interest and extend for time periods of 60 to

90 days or longer.

3. Trade receivables are notes and accounts receivables that result from

sales transactions.

4. Other receivables include nontrade receivables such as interest

receivable, loans to company officers, advances to employees, and

income taxes refundable. These are unusual; therefore, they are

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generally classified and reported as separate items in the balance

sheet.

However, the researcher is going to research on one of the receivables types

mentioned above called “Accounts receivable” because these they

represent one of the largest most liquid assets that a company may hold.

In addition, the overall goal of every business enterprise is to earn profit, and

those businesses use measurement that indicates the profitability in the

firm. The first one is profit margin which tells decision makers how much

profit is generated or how much loss is incurred (Brock, Palmer, & price,

1990). The second one is return on sales which indicates how much profit is

being produced per dollar of sales. As with many ratios, it is best to compare

a company's ROS over time to look for trends, and compare it to other

companies in the industry. An increasing ROS indicates the company is

growing more efficient, while a decreasing ROS could signal looming financial

troubles. And the final one is return on equity which indicates the amount of

net income returned as a percentage of shareholders equity (Finche,

2003). Return on equity measures a corporation's profitability by revealing

how much profit a company generates with the money shareholders have

invested.  

On the other hand, whenever a business enterprise makes business

transactions which have monetary value could be cash based or credit

based, so accounts receivable plays a great role in the business and

deserves to be managed effectively.

According to Roberto, Short, and Patricia (2001) accounts receivable

management “is the process of establishing an effective system for credit

policy, credit risk management, credit risk procedure, and recognition bad

debt expense”. Credit is the process of establishing and defining under what

conditions you will extend credit, how much credit you'll extend, and to

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whom. Decide whether to accept checks and credit cards, how you will

investigate new customers before extending credit, if you will require your

customers to pay deposits before delivering goods or services, and if you will

charge interest on late accounts.

And like wise, credit risk management is a process to assess the credit

worthiness of the buyer and then come up with possible alternatives to

manage these risks.

Therefore, if there is no effective credit policy, and credit risk management,

it means that the enterprise is not investigating the worthiness of the buyer,

not credit limit, and this will add more

Risk sales of the enterprise which it sold on credit, so, this risk will result loss

which will reduce the profit of the enterprise over particular period of time.

Secondly, if the credit collection procedure is weak, the period outstanding

the amount of credit will increase and this means that there is no immediate

cash collection, and if there is no immediate cash collection there is no

purchase of goods.

Finally, this study seeks to assess the effect of accounts receivable

management on profitability.

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Statement of the Problem

Manufacturing companies need to generate profit. To be able to generate

this profit, they need sell their products both on cash basis and credit bases

so as to attract customers and get good market share from their rivals.

Offering products on credit base to customers needs an effective credit

system management that allows the firm to collect its accounts due on time

and not inherit risk form the buyer.

In Somaliland, nowadays, manufacturing companies were experiencing a

tough competition from their rivals, due to this tough competition in the

market, manufacturing companies needed to sell their products both on cash

bases and credit bases and those manufacturing companies do not have an

effective credit system that allows the firm to collect its accounts due on

time and not inherit risk from the buyer. They are still using the traditional

credit based system.

In view of this discrepancy, there is need to establish the kind of relationship

that should exist between the tough completion in the market and the credit

system management regularization.

Due to that problem, the researcher has got encouragement to research on

the effects of accounts receivable on profitability.

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Purpose of the Study

The purpose of this study is to determine how accounts receivable

management effect the profitability in manufacturing companies in

Somaliland, particularly 5 selected manufacturing companies.

Under this study, accounts receivable management will be characterized by

credit policy, credit management, billing and credit collection procedure, and

profit by excess of revenues over expenses, and growth of owner’s wealth.

Research Objectives

The objectives of this study are:

To determine the profile of the respondent in terms of: Age, Gender,

Education level, and Number of years worked with company.

To identify the level of managing accounts receivable in selected

manufacturing companies in Hargiesa, Somaliland.

To determine the level of profitability in selected manufacturing companies

in Hargiesa, Somaliland.

To establish a relationship between the level of managing accounts

receivable and level of profitability in selected manufacturing companies.

Research Questions

What the profile of the respondents is in terms of: Age, Gender, Education level and number of years worked with the company?

What is the level of managing accounts receivable in selected manufacturing companies in Hargiesa, Somaliland?

What is the level of profitability in selected manufacturing companies in Hargiesa, Somaliland?

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Is there a significant relationship between the level of managing accounts receivable and level of profitability in selected manufactured companies in Hargiesa, Somaliland?

Hypothesis

Ho: There is a significant relationship between project the level of managing accounts receivable and level profitability in selected manufactured companies

HA: There is no significant relationship between project the level of managing accounts receivable and level profitability in selected manufactured companies?

Significance of the Study

Firstly, this study will benefit the managers of manufacturing companies who

were experiencing nowadays credit system problem and improving their

understanding towards the effects of accounts receivable management on

firm’s profitability.

Secondly, the study will highlight how effective accounts receivable

management will improve the profitability level and even the components of

credit system.

Finally, the study will add some knowledge to the already existing facts

about effects of accounts receivable management on firm’s profitability to

those researchers who re interested in accounts receivable management for

further research.

However, this will lead to the generation of ideas for better understanding of

the relationship between accounts receivable management and profitability.

Scope of the Study

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Geographically, this study will take place at a 5 selected manufacturing

companies which are located in Somaliland especially Hargeisa the capital

city of Republic of Somaliland. The study will be mainly limited to

managing accounts receivable and profitability in selected manufactured

companies. This study will use descriptive correlation quantitative

research design and a sample of (35) respondents. The study specifically

seeks to determine the effect of accounts receivable management on

profitability in selected manufacturing companies manufacturing

company.

1.8 Theoretical and Conceptual Frameworks

The theoretical framework adopted for this study was derived from the profit maximization

theory of firms developed by D.W Stephen, J.F. Lynch, & A.E.Sorensen (1984). this theory was

adapted for this study because it mainly focuses on how the marginal revenue and marginal cost

effect the firm’s profit, so, if it is no managed effectively and strongly the credit system or

accounts receivable, it will has negative impact to the profitability.

According to Hall (2005) profit maximization is a process that companies undergo to determine

the best output and price levels in order to maximize its return. The company will usually adjust

influential factors such as production costs, sale prices, and output levels as a way of reaching its

profit goal. There are two main profit maximization methods used, and they are Marginal Cost-

Marginal Revenue Method and Total Cost-Total Revenue Method. Profit maximization is a good

thing for a company, but can be a bad thing for consumers if the company starts to use cheaper

products or decides to raise prices.

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Marginal revenue method is the change in total revenue from increasing quantity by one unit, so

if marginal revenue increases the profitability will increase and vice verse. While the marginal

cost method is the change in total cost from increasing quantity by one unit, so, if the marginal

cost increases the profitability will decrease and if the marginal cost decreases the profitability

will increase.

In addition to that, if the independent variables: credit policy, credit risk management, and billing

and collection process, and recognition of bad debt expenses are managed effectively, it will

increase the firm’s marginal revenue and this will result the firm to gain high profit.

Conceptually, the accounts receivable management is the process that includes balance forwards,

listing of all open invoices, and generation of monthly statements to customers. An aging of

receivables will be used to collect overdue accounts.

However, the independent variable of accounts receivable management is: credit policies, credit

risk assessments, billings and credit collection procedure while the dependent of this study the

firm’s profitability. The study also investigates the extraneous variables which are personal

honest, risk and uncertainty.

1.9 Conceptual Framework

9

Independent Variable (accounts receivable management)

Credit policy

Credit risk management

Billing and collection procedure

Dependent Variable

Profitability

Extraneous Variables

Risk and uncertainty

Personal honest

Source: primary source

As the above figure depicts, the independent variable has great effect on the firm’s profitability

level, and if these variables are not managed effectively, the firm’s profitability will reduce.

CHAPTET TWO

REVIEW OF RELATD LITERATURE

2.0 Introduction

Credit is an indispensable catalyst in financing the movement of commerce. Its roots go fairly

deep in time and are definitely as old as the concept of trade itself. As early as 1300 BC the

Babylonians were lending on the basis of getting a charge on security or collateral. Credit

touches us in various ways. To some it could be a mere caress or a tickle, to others it could be a

brush, to some a graze and for others a crash or a collision (Grove, 2000).

Credit helps in production, distribution, selling, consumption and expansion. It helps

smoothness of the rough curve of seasonality of a seasonal business. It increases the

immediate buying power of a consumer. But where there is good there may also be bad

and ugly. Credit could mean a collapse due to Overbuying, Overexpansion or

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Overselling.

Probably the single most important factor is the maintenance of proper cash flow in

operating a successful franchise. Cash flow problems can be avoided by making sure that

you administer and manage credit with financial prudence and get paid promptly for

goods or services rendered. Accounts Receivables, which can be broadly defined as

uncollected sales, are one of the largest assets of a business, amounting to approximately

15% to 20% of the total assets of a typical manufacturing business. An uncontrolled

growth in sales could result in an uncontrolled management of account receivables

(Grover, 2005).

credit just goes to corroborate the fact that no matter how big or small is the size of business

operation, companies are focusing increasingly on managing and collecting their receivables

efficiently and effectively, thus maximizing their cash inflows.

Credit is temporary capital and the objective of credit is to lend with the purpose of increasing

profits and sales. A sound credit policy in business is the blue print to managing by measurement

and benchmarks. The question then arises is 'What is a Credit Policy and how does one write a

Credit Policy for their specific nature of business operations?

2.1 Credit Policy

Credit policy is guideline addressing how accompany evaluates potential customers who wish to

buy on credit (Grove, 2000). Writing an effective Credit Policy begins with an understanding of

the financial exposure that you or your business can endure and the amount of your working

capital that you would be willing to risk, or call it 'invest' in your customers.

2.1.1 Components of Credit Policy

Components of credit policy are those which guide establishing an effective credit system hat

will allow the firm to collect its outstanding amounts in time. In addition the components of

credit policy are as follows:

2.1.1.1 Credit Limit

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A credit limit is one of the components of credit policy set by the authorities body for controlling

the amount that a borrower could take as credit and it is the maximum amount of credit that a

financial institution or other lender will extend to a debtor for a particular line of credit

(Wikipedia, 2008). This limit is based on a variety of factors ranging from an individual's ability

to make interest payments, an organization's cash flow and/or ability to repay the principal, to the

credit standards employed by the lender. A credit limit is also based on the borrower's

recoverable assets in the event of default.

According to Grove (2005) “Credit Limits are threshold that a company (creditor) will allow its

customers to owe at any one time without having to go back and review their credit file.   Credit

Limit is the maximum amount that a firm is willing to risk in an account. 

Credit Limits helps the creditor in the following ways:

a.      It frees up valuable time for other credit management tasks

b.      It speeds up the sales process

c.      It reduces risk and improves collection activity and efforts.

2.1.1.2 Credit Analysis

Credit analysis is the process of determining the probability that customers will or will not pay

his/her obligation (Bearly--). In credit analysis process, it is process to analyze the

creditworthiness of the buyer by using the 5’C of credits as follows:

Collateral is a borrower's pledge of specific property to a lender, to secure repayment of a

loan. The collateral serves as protection for a lender against a borrower's risk of default -

that is, any borrower failing to pay the principal and interest under the terms of a loan

obligation. If a borrower does default on a loan (due to insolvency or other event), that

borrower forfeits (gives up) the property pledged as collateral - and the lender then becomes

the owner of the collateral (Riter, 2001).

Condition is the relevant economic conditions which surround you when you are granting

credit.

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Character is the applicant’s willingness to pay the bill when they become due.

Capital is the financial resources obtained from financial records that a company may have

in order to deal with its debt. Many a time's credit analysts would make this portion of the

credit analysis the most important one. Weight is given on Balance Sheet items and

components like Working Capital , Net Worth and Cash Flow.

Capacity is the ability that borrower can the pay the obligation.

2.1.1.4 Price Discounts

Price discounts are reductions to a basic price of goods or services. They can occur anywhere in

the distribution channel, modifying either the manufacturer's list price (determined by the

manufacturer and often printed on the package), the retail price (set by the retailer and often

attached to the product with a sticker), or the list price (which is quoted to a potential buyer,

usually in written form). The market price (also called effective price) is the amount actually

paid. The purpose of discounts is to increase short-term sales, move out-of-date stock, reward

valuable customers, and encourage distribution channel members to perform a function, or

otherwise reward behaviors that benefit the discount issuer. Some discounts and allowances are

forms of sales promotion (Wikipedia, 2008).

2.2 Credit Risk Management

First, risk can be defined as the combination of the probability of an event and its consequences

(ISO/IEC Guide 73). In all types of undertaking, there is the potential for events and

consequences that constitute opportunities for benefit (upside) or threats to success (downside).

According to Pyle (1997) a risk may be defined as reduction in firm value due to changes in

business environment.

Secondly, the major sources of risks are identified as follows:

Market risk: it is the change in net asset value due to changes in underlying economic

factors such as interest rates, exchange rates, and equity and community prices.

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Credit risk: it is the change in net asset value due to changes the perceived of counterparties

to meet their contractual agreements.

Operation risk: it is the results from cost incurred through mistakes made in carrying out

transactions such as settlement failures, failures to meet regulatory requirement, and

untimely collections.

Performance risk: it encompasses losses resulting from the failure to properly monitor

employees or to use appropriate methods (including “model risk”).

In addition to that, credit risk management as mentioned above is the change in net asset value

due to changes the perceived of counterparties to meet their contractual agreements.

However, credit risk management is a continuous process of creating transparency and risk

mitigation that can face the firm, and assessing the credit worthiness of buyer. Credit risk

management has control cycle of risk management as mentioned below so as manage the risk

and prevent the firm to inherit a risk from the third party.

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Source: (Bessis & Joel 2002).

As mentioned above, credit risk management has control cycle to be taken when ever the firm is

granting credit to the third party so as to assess the potential risks that a firm can face. Accordig

to Bessis and Joel (2002) credit risk control cycle has the following steps to be taken:

The credit risk manager should identify the possible losses that the firm will encounter if it

grants credit portfolio. Potential losses in the credit business can be divided into:

expected losses

un expected losses

The credit risk manager measure and aggregate the potential risk by using forecast, stress

tests and correlation and portfolio model respectively.

The credit risk manager should plan and control the risks that will face if it grants credit

portfolio by using risk-adjusted prices.

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2.3 Billing and Credit Collection Procedure

Collection procedure is a detailed statement of steps to be taken regarding when and how the

past-due amounts are to be collected. Collection procedure is laid down usually in the credit

policy.

If there is a strong and effective system for collection of over due accounts, the amount of cash

on hand and sales revenue will be increased and this will have a great impact on the profitability

level and vice verse. Before you start to collect the over due accounts, you should know your self

which means if you are not physically and mentally prepare to make that phone call, it will be

waste of time and phone call. Emotions can be very easily read over the phone. So be eager to

collect the money. After all it is your money (Grover, 2005)!

Secondly, ask questions to your customer because questions convey to your customer that you

are concerned. Questions also provide you important information for leading the discussion and

controlling it. Questions also yield information or reference material for future reference. Ask

open ended questions and when the conversation requires it ask leading questions. If time is

being wasted then perhaps start closing with close-ended questions. Keep control!

2.3.1 Collection Policy

An effective collections policy requires some kind of formal system that ensures overdue

accounts get paid. Letting late payments languish can disrupt cash flow and harm your

company’s chances of success.

To keep receivables flowing smoothly, many businesses use a series of letters and phone calls to

encourage customers to pay. These communications start out friendly and progressively become

more serious and insistent as payments become overdue. How you structure your collections

system is an individual matter – you may be more comfortable calling up clients than sending

letters, for instance. The important thing is to have a system, and you can use the steps outlined

below to create yours (National Association of Credit Management, 2009).

Effective collection policy will let the firm to collect the over due accounts from the customers.

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2.3.2 Credit Collection Procedure

Customer satisfaction phone call: Dissatisfied customers are more likely to pay late.

These friendly calls let you inquire about your performance to ensure you met your

customers’ needs. End these calls by mentioning that a bill will be arriving shortly, and

reinforce its due date.

Timing: three days after delivery of your product or service, but before payment is due

(Grover, 2000).

First, second and third over due notice: This is a friendly reminder that the due date

has passed. You are assuming that the client has forgotten neglected, or lost the bill and

will pay with a gentle prodding. One common method is to send a duplicate invoice with

“past due” stamped on it.

First collection phone call: Follow the overdue notices with a phone call to find out if

there is a reason for non-payment.

First collection letter: Keep the tone of this letter consistent with the first phone call –

courteous, but direct. Confirm in writing what was said in the call, and remind the debtor

of his or her promise to pay

Second collection phone call: The account is now 30-40 days past due. Be polite yet

firm, and ask for full immediate payment. Work to resolve payment problems. If the

debtor cannot pay immediately, get him or her to commit to a payment date.

Second collection letter: Now is the time to communicate the seriousness of the

delinquency. This letter should demand immediate payment, and discuss the short-term

consequences of failure to pay. Send this letter – and any correspondence that follows –

via certified mail or overnight mail to give you a record that it was received.

Final collection letter: The tone is now stern and demanding. Use this letter to confirm

what was agreed upon in the last call and demand payment. State that if payment is not

received by the agreed-upon date, you will turn the account over to a collection agency.

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On the other hand, billing is the process of sending a bill (also called an invoice or accounts

receivable) to customers for goods or services is called billing. The bill may be attached to the

goods or forwarded separately (Wikipedia, 2009).

In addition to that, you can speed up receivables and avoid late payment problems by developing

an effective billing plan and this plan increases or increments the level of profitability in the firm

by increasing sales revenue.

2.3.3 Billing Process

1. Create an effective invoice: Make sure that your invoices are clear, accurate, detailed

and easy to decipher. Each one should include the amount due; a purchase order number;

customer name and address; and your business' name, address, and ID number. You

should also include the name and phone number of a person in your company to contact

if there are any questions. If possible, itemize the charges. It is harder to contest a bill that

is itemized, and if there is a dispute over one of the charges, you can legitimately ask to

be paid for the uncontested, itemized charges. Invoices should also contain a clause

instructing the customer to contact you if there are any problems with your services, and

a clear outline of late charges (Grover, 2000).

2. Mail invoices promptly: the sooner you get invoices out; the sooner payments will come

in. Some small businesses send invoices out monthly, but this is a mistake since it can

delay some receivables by two to three weeks. Instead, try to send invoices within a day

or two of delivery of your product or completion of a project.

3. Bill the right person: Sending a bill to the wrong person can push payment off as much

as 30 or 60 days as it gets routed around a company. Talk directly with your client and

ask to whom you should send your bill. If the bill is going to someone other than your

day-to-day contact, call and introduce yourself before you put the bill in the mail. If you

are sending a bill to your client's bookkeeper or accounting department, copy your client

as well and follow with a phone call.

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4. Follow up: It is easy for a bookkeeper to ignore an invoice if there are no follow up

phone calls to check on its status. A quick check-in can confirm that your invoice was

received &processed.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

The purpose of this chapter is to present the methodological process of the study. It outlines the

research design, target population and samples size, sampling technique and procedure and

research instrument used in data collection, research procedures and research analysis.

3.2 Research Design

This study will be conducted though case studies research design. Case study research design is

an “empirical inquiry that investigates a contemporary phenomenon within its real-life context:

when boundaries between phenomenon and context are not clear evident and in which multiple

sources of evidence are used (Yin, 1994). It is a detailed examination of one setting, or a single

subject, a single depository of documents or one particular event (Valdo, 1990).

Case study will be particularly chosen because it enables the research to study in detail the

experience of a single manufacturing firm on the effects of accounts receivable management on

profitability.

3.3 Target Population and Sample Size

The study will primarily focus on Ilotango manufacturing company which is located Hargeisa,

Somaliland. The target populations of this study are managers, credit collectors, and accountants

in Ilotango manufacturing company and their total number is 7. This manufacturing firm will be

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chosen because 95% of its sales are credit based; secondly, it is one of the largest manufacturing

sectors in Somaliland.

According to Amin (2005) the sample size of this study is 7 respondents which 2 are from top

managers, 4 from credit managers, 1 from accountant. A census sample will be adapted in this

study because it is case study and target population is very small, so, it should be taken the whole

accessible population.

3.4 Sampling Procedure and Technique

This study will employ purposive sampling technique. According to Amin (2005), “purposive

sampling is the type of sampling where the researcher uses his/her judgment or common sense

regarding participant from whom the information will be collected”.

The researcher will use purposive sampling to choose the respondents that he/she believes that

they have the information concerning this study by using his/her own judgment, and then the

research will distribute the questionnaire to them.

A sample will be selected from the accessible population who are managers, accountants and

employees (credit collectors) of Ilotango Manufacture Company and then researcher will

distributer the questionnaire to them.

3.5 Research Instrumentation

A structured research questionnaire will be used in this study. A questionnaire is a formatted set

of questions that was drawn up to meet objectives of the study (Mugenda, & Mugend 1989).

The instrument comprises of 18 questions that include both closed and ended questions.

Respondents will be asked if they had adopted accounts receivable management such as credit

policy, credit risk management, billing and collection procedure, and how it effects the

profitability.

The method will be used because most managers, accountants, and credit collectors are busy

with their duties and the tool will give them humble time and will allow them to fill the

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questionnaire at their free time and also it would allow consistency and uniformity through out

collection process.

3.5.1 Data Collection Procedure

After the research proposal gets approval, the researcher will request from academic authorities

to obtain introduction letter which states the permission to collect the research questionnaire

within the selected manufacturing company, and proofs that the researcher is a student of

Kampala International University (KIU). The researcher will distribute the questionnaire with

attached letter of introduction from the university to the selected manufacturing company. After

the distribution of the questionnaire, the research will collect the date and analyze and then draw

conclusions from the research objectives and recommend those find. After that, the researcher

will prepare the final report to submit to the concerned authorities.

3.6 Data Analysis

After the researcher receives the questionnaire filled by the respondents, the researchers will use

SPSS (Statistical Package for Social Science) to process and analyze data by using Correlation

Studies.

According to Amin (2005) defines Correlation studies “it is a statistical technique that enables

the researcher to measure and describe the relationship between two variables X and Y”.

After the researcher collects the data, it will be stored manually in the SPSS worksheet and the

information will be gathered through graphical presentation. 21

Statistical Package for the Social Sciences (SPSS) was released in its first version in 1968 after

being developed by Norman H. Nie and C. Hadlai Hull. SPSS is among the most widely used

programs for statistical analysis in social science. It is used by market researchers, health

researchers, survey companies, government, education researchers, marketing organizations and

others (Wikipedia, 2010).

REFERENCES

Amin, M. E. (2005). Social science research: Conception, Methodology, & Analysis. Kampala:

Makarerery.

Abel, G. Mugenda & Olive, M. Mugenda (2003). Research methods: Qualitaitive and

Quantittitive approach. Kampala: ACTS

Besses, Joel (2002). Risk management in banking (2nd ed.). Wiley

Finch, R. (2003). Operation now.com: process, values & profitability. New York: Macmillan

Horaca, R. Brock, Charles, E. Palmer, & John, E. Price (1990). Accounting principles (6th ed.).

New York: Macmillan

Hall, D. Sundem (2005). Managerial accounting: profit maximization handbook (2nd ed.) Ohio:

South-west publishing

National Association of Credit management (2009). Credit risk management

Puru Grover (2000). Credit management and debt recovery (2nd ed.). New Jersey: Pearson

education, Inc

Puru Grover (2005). Credit management and debt recovery(3th ed.). New Jersy: Pearson

education, Inc

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Plye (1997). Credit risk management. London: Macmillan

Roberto, A. John, Short, R., & Patrica, E. Libya (2001). Accounts receivable management. New

York: Macmillan

Riter (2001). Credit policy management. Washington

Somaliland constitution (2009). Constitutional changes. Retrieved on January 07, 2010, from World

Wide Web http://somalilandlaw.com

Valdo (1992). Introduction to social science research. New York

Wikipedia (2008). Credit management. Retrieved on January 07, 2010, from World Wide Web

http://www.creditguru.com

Wikipedia (2010). Credit risk management. Retrieved on February 25, 2010, from World Wide Web

http://www.creditguru.com

Yin R.K. (1994). Research in education. London

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APPENDICES

Appendix A: TIME FRAMEWORK

Activity Duration Dates (2010) Location

Preliminary readings 15 days July 1- July 15 Kampala-Uganda

Preparation of instruments 15 days July 16-July 30 Kampala-Uganda

Acquisition of authorization to

access study site

1 month August KIU, Kampala-

Uganda

Data collection 15 days September 1-September

15

Hargeisa-Somaliland

data cleaning and organization 5 days September 16-

September 21

Hargeisa-Somaliland

Data analysis and interpretation 15 days September 22-october 7 Kampala-Uganda

Preparation of the first draft of

report

15 days October 8-october 24 Kampala-Uganda

Preparation and submission of

the final report

15 days October 25-novenber

10

KIU,Kampala-

Uganda

24

APPENDIX B: BUDGET

NO. DESCRIPTION UNITS UNIT COST TOTAL AMOUNT(US DOLLAR)

1 Field assistants 3 $ 30 $ 90

2 Stationeries( photocopy papers

and pens)

50 20 100

3 Consultant 1 50 50

4 Editor 1 100 100

5 Refreshment for

respondents( drinks)

20 bottles 1 20

6 Contingency - - 50

Grand total 410 US $

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APPENDIX C: INSTRUMENT

Questionnaire form for Top Managers in Ilotango Manufactured Company

I am Jamal Hassan Mohamoud a master student of Kampala International University which

locates southern party of Kampala city (capital of Uganda) and currently pursuing a Master of

Business Administration. I am carrying out a research on effects of accounts receivable

management on profitability in your company as part of the fulfillment for the reward of the

master degree and I would like to assure you that all information given will be strictly used for

only academic purpose only. I therefore, kindly request you to fill out the questionnaire, and any

information given will be highest confidentiality. Than you very much

SECTION ONE: DEMOGRAPHIC DATA

1) Sex a) male

b) Female

2) Marital status:

a) Married b) single

c) Widowed d) divorced

3) Age:

a) 30-35 b) 36-41

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c) 42-47 d) 48 above

4) Level of education:

A) Secondary B) diploma

B) Bachelor degree C) Masters

SECTION TWO: Credit policy

1) Does your company have credit policy?

A) Yes B) No

If no why-----------------------

2) Who sets the credit policy?

A) Top manager B) credit manager

B) C) accountant D) others-

3) What are the components of credit policy?

A) Credit limit B) credit time

C) credit discount rate

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D) Credit limit, time, & discount rate E) others (specify)

4) Does credit policy have relation on firm’s profitability?

A) Yes B) No

5) If your answer is yes, what effects does credit policy have on the firm’s profitability?

Increase Decrease No effect

Sales

Collection amounts

Operating profit

Operation costs

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Question form for Credit managers in Ilotango Manufactured Company

I am Jamal Hassan Mohamoud a master student of Kampala International University which

locates southern party of Kampala city (capital of Uganda) and currently pursuing a Master of

Business Administration. I am carrying out a research on effects of accounts receivable

management on profitability in your company as part of the fulfillment for the reward of the

master degree and I would like to assure you that all information given will be strictly used for

only academic purpose only. I therefore, kindly request you to fill out the questionnaire, and any

information given will be highest confidentiality. Than you very much

SECTION ONE: Demographic Data

1) Sex a) male b) female

2) Marital status:

a) Married b) single

c) Widowed d) divorced

3) Age:

a) 30-35 b) 36-41

c) 42-47 d) 48 above

4) Level of education:

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A) Diploma B) bachelor degree

B) C) masters D) others (specify)

SECTION TWO: Credit risk management

1) How do you investigate the credit worthiness of your buyer?

A) Credit agent B) Trade references C) Banks

C) Audited financial statement E) others (specify)

2) What are the risks associated with buyer in granting trade credit?

A) Market risk B) Credit risk C) operation risk

3) What type of credit risk assessment do you use before granting trade credit to your

buyer?

A) Risk identification and analysis

B) Others (specify)-----------------------

---------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------

4) Does credit risk management have relation to the firm’s profitability?

A) Yes B) No

5) If your answer is yes, what effect does credit risk management have on the firm’s

profitability?

30

Increase Decrease No effect

Credit default

Credit risk cost

SECTION THREE 1: Billing process

1) Do you create an effective invoice which is clear, accurate and decipher?

A) Yes B) No

2) When do you mail the invoices?

A) Promptly B) after weak

C) After month D) others (specify)

3) Do you have follow up phone calls to make sure whether invoices have received or not?

A) Yes B) No

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SECTION THREE 2: Collection procedure

1) Who approves the credit amount, limit, and time?

A) Credit manager B) Top manager C) others (specify)

2) What are the terms of the payments?

A) 50%-70% this month, remaining the following month.

B) 70%-90% this month, remaining the following month.

C) Others (specify) -----------------------------------------

3) How do you collect your over credit due?

A) By telephone

B) By letters

C) By collection agencies

D) Others (specify)-------------------------------------------------------------

4) Does your billing and collection process have relation to your firm’s profitability?

A) Yes B) No

5) If your answer is yes, what effects does billing and collection procedure have on firm’s

profitability?

increase Decrease No effect

32

Sales

Collection amounts

Credit default

Questionnaire form for Accountants

I am Jamal Hassan Mohamoud a master student of Kampala International University which

locates southern party of Kampala city (capital of Uganda) and currently pursuing a Master of

Business Administration. I am carrying out a research on effects of accounts receivable

management on profitability in your company as part of the fulfillment for the reward of the

master degree and I would like to assure you that all information given will be strictly used for

only academic purpose only. I therefore, kindly request you to fill out the questionnaire, and any

information given will be highest confidentiality. Than you very much

SECTION ONE: Demographic Data

1) Sex a) male b) female

2) Marital status:

a) Married b) single

c) Widowed d) divorced

3) Age:

a) 30-35 b) 36-41

c) 42-47 d) 48 above

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4) Level of education:

A) Diploma B) bachelor degree

D) C) masters D) others (specify)

SECTION TWO: Recording accounts collected

1) Which method do you use for recording accounts receivable collected?

A) Computer

B) Manually

2) How often do you update a borrower’s file?

A) Daily b) weakly

B) C) monthly D) others (specify)

3) What information is routinely requested to update borrower’s file?

A) Payment voucher B) credit application

B) C) others(specify)

4) When do you recognize bad debt?

A) After 2 month B) after 3 month

C) After 6 months C) others (specify)

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5) How do you manage bad debt?

A) By Suing B) by giving discount

C) Other (specify)

35