Account Receivable Management Practices of Smes in Tanzania: A Qualitative Approach

Abstract

This paper focused on establishing how micro, small and medium enterprises (MSMEs) operating in Tanzania manage debtors. The study used an exploratory approach and was informed by the asymmetric information theory. Saturation point was reached in the fifteenth case. A content analysis was used for the data analysis. The findings show that MSMEs are aware of the importance of managing debtors; they use different means to screen prospective debtors and follow them so that they get paid on time. The same methods are used to monitor and control bad debts. Informal networking, calling debtors, and visiting their residences or workplaces are mostly used to reduce asymmetric information problems. The paper contributes to the theory by stressing the importance of searching for relevant information while managing debtors. The results further depict the formal credit risk management process and contribute to the literature on the actual methods used by MSMEs while managing debtors. Results suggest that less costly methods of monitoring debtors should be sought and used.