Credit Risk Management Policies and Debt Collection Performance by Registered Security Companies in Kenya

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. Over time 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 companys operations are adversely affected. This study sought to assess the effect of credit risk management policies on debt collection performance by registered security companies in Kenya, for the period 2013 to 2017. 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 credit approval and scoring policies decreases debt collection performance. The study established that credit limit policy has insignificant effect on 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.