IMPACT OF RECEIVABLES AND PAYABLES MANAGEMENT ON THE PROFITABILITY OF SMES IN TANZANIA

A well designed and implemented receivables and payables management is expected to contribute positively to the SMEs profitability. The purpose of this paper is to determine the impact of average collection period and average payment period on SMEs profitability In Tanzania. The study is carried out using dependent variable as gross operating profit and independent variables as average collection period and average payment period employing relevant information of 38 Tanzanian SMEs,s for the period from 2006 to 2011. This study employed Regression analysis to determine the impact of average collection period and average payment period on gross operating profit taking current ratio, size of the firm, financial debt ratio as control variables. The results indicate that there is a significant negative relationship between average collection period and profitability. Positive relationship is observed between average payment period and gross operating profit. The relationship between two control variables viz; current ratio, financial debt ratio and gross operating profit indicate the expected negative relationship whereas the firm size indicate unexpected negative relationship which may be due to gaps in managerial performance.