Credit Policy and Financial Performance of Logistics Firms in Uganda.

Abstract

The general purpose of the study was to establish the relationship between credit policy and financial performance of firms in the logistics industry in Uganda with particular reference to Interfreight Uganda Limited. Specifically the study examined the relationship between credit standards, credit terms, credit monitoring and financial performance of Interfreight Uganda. The study used a cross sectional descriptive study combined with a case study design using qualitative and quantitative approaches on population of 140 at Intefreight. Data was collected using questionnaire and interview guide and was analysed using SPSS in which descriptive statistics of mean and standard deveiation, correlation analyses and regressions analysis were done. The study found a moderate positive and significant relationships between credit standards and financial performance of the logistics firm (r = 0.327**, p = 0.002), credit terms and financial performance (r = 0.456**, p = 0.000), credit monitoring and financial performance (r = 0.470**, p = 0.000). The study concluded that compliance to credit standards, credit terms and credit monitoring as established in the company credit policy if adhered to contribute positively and significantly to the firm’s financial performance by improving in the firm’s cash flows, sustainability and revenue growth. The study strongly recommends that to enhance financial performance of the firm, the management of Inter-freight should strengthen their credit monitoring by regularly making client visits, telephone calls and emails coupled with regularly reviewing its credit standards after an empirical analysis of the market conditions. This should be complemented with instituting of credit terms related to credit payment incentives and deterrents by negotiating the payment installment amounts, credit discounts, fines and penalties in the credit contracts/agreements with clients. Bench marking with other firms on credit monitoring and recovery best practices is equally recommended in complement to management commitment and upgrading of the credit monitoring information system.