Impact of accounts receivables management on the profitability of SMEs in Tanzania

Receivables management plays a pivotal role in working capital management of Small and Medium Enterprises (SMEs) in Tanzania. A trend analysis of average collection period of 38 SMEs and their gross operating profit has been fluctuating with higher standard deviation and variance over a period of 2006 to 2011 showing signs of association. This study employs Regression analysis to determine the impact of average collection period over 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 linear relationship between average collection period and profitability. 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 positive relationship. This result hints need for effectiveness of managerial role in SMEs of Tanzania especially in component of working capital.