Financial Management of trade credits in small-medium sized enterprises: the case of SMEs in Arusha

Trade credit is a major competitive tool for small business. However, there are risks in advancing it. The late-payment of trade credit can adversely affect a firm’s working capital. Which may jeopardize its very existence. Ineffective working capital management. Especially the extension of trade credit and its nonpayment. Has been identified as a cause for small business failure in Tanzania. The objective of this study was to examine financial management of trade credit in small and medium size enterprises.The study involved 35 small business enterprises in Arusha region. The main data collection methods were in –depth interviews and questionnaire. The findings shown that credit management in smaller firms falls behind best practice. In spite of the importance of trade credit. The majority of SMEs do not have a documented credit policy. The impact of late payment was identified as serious for small firms. Among other things. Late payment problem were attributed by ineffective internal processesThese involved errors in an invoice or errors in the delivery. Characteristics associated with slower payments were found to be customer product services dissatisfaction. Poor supplier/ customer relationship and customer financial strength.It was recommended that. Small business need be encourage by their advisors to become more proactive in their credit management practices. The need to focus on customer satisfaction as a strategy to improve credit management was also emphasized. In addition to that business advisors and government policy makers were challenged to take active role to encourage and facilitate developments of best practice and implementation of the same by SMEs.