proposal
TRANSCRIPT
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
2
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
3
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.
4
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.
5
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?
6
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
7
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.
8
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
10
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
11
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.
12
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.
13
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.
14
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.
15
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.
16
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.
17
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.
18
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
19
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
20
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
22
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
23
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 $
25
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
26
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
27
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
28
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:
29
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
31
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
33
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)
34
5) How do you manage bad debt?
A) By Suing B) by giving discount
C) Other (specify)
35