Credit Control Management and Business Performance : The Malaysian Family Sme Perspective

By Khin, Edward Wong Sek; Loong, Chong Kei et al. | The South East Asian Journal of Management, April 2015 | Go to article overview

Credit Control Management and Business Performance : The Malaysian Family Sme Perspective


Khin, Edward Wong Sek, Loong, Chong Kei, Singh, Gurcharan, The South East Asian Journal of Management


It is widely believed that credit control management can help create a strong cash flow in a company. The purpose of this study is to determine the factors that influence effective and efficient credit control management in Malaysian family SME. It will further explain why some family businesses/firms have managed to achieve higher performance and higher profits through the use of better profit sources, while others have failed to score improvements in terms of either performance or sources of profit. The data was collected from 90 Malaysian family SMEs/firms. This study tested four independent variables (1) standard credit control policy and procedures, (2) employee development and motivation, (3) intelligence collection system, and (4) comprehensive debtor collection report. We used SPSS to test all the independent variables in order to determine the significance of these variables and assess the effectiveness and efficiency of credit control management efforts. The results from a survey on 90 firms indicate a positive relationship between each independent variable and its dependent variable. This study also proposes several important suggestions for the improvement of credit control management practices in Malaysian family SMEs.

Although both family businesses and non-family businesses are concerned with credit control management and business performance, what differentiates family businesses from non-family businesses is the variation in the relative importance of factors affecting each decision. A family business, as a strategically distinct entity, has a unique strategic approach towards tax planning, business continuation, founder transition, and owner/manager life cycles. They have different goals, traditions, life-cycle stages, and values from a non-family business. Indeed, family business decisions are more complex due to non-monetary motivations such as preserving and transferring family assets, both tangible and intangible, to the next generation; these motivations inevitably influence management decisions.

Meanwhile, the varying degree of the owning family's involvement should show that a family businesses lie on a continuum rather than in a state of binary opposition between family and non-family businesses.

Credit control and debtor management is important for a successful company. However, some family SMEs are still unable to monitor their debtor receivables and bad debts effectively, and this causes cash flow problems that may eventually force the business to cease operations.

This study examined the factors affecting the effectiveness and efficiency of credit control and debtor management measures in Malaysian family SMEs/firms. It further seeks to explain why some family firms achieve higher performance and obtain higher profit and better sources of profits, while others failed to achieve either or both.

This study seeks to cover the following research subjects: (1) The effects of credit control policy and procedures upon effective and efficient credit control and debtor management; (2) The effects of employee development and motivation upon effective and efficient credit control and debtor management; (3) The effects of an intelligence collection system upon effective and efficient credit control and debtor management; (4) The effects of comprehensive collection reports upon effective and efficient credit control and debtor management.

LITERATURE REVIEW

The objective of the literature review is to gain a clearer understanding of the definition of credit, why businesses extend credit, the importance of credit control management, the organization of the credit control department, how to prevent credit losses, the methods used to collect payments on time, the responsibilities of the credit control manager, the duties of tomorrow's credit control manager, and credit policies and procedures in relation to business performances.

Credit Control

According to the Dictionary of Business Dictionary, to "offer credit" means to defer payment terms offered by a seller to a buyer as a standard trade practice or to encourage sales. …

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