Tracking the Credit Collection Period of Malaysian Small and Medium-Sized Enterprises

Abstract

Profits of a company depend upon its frequency of reinvestment, or turnover, of its capital. Frequent turnover would not be possible if collections are slow as they deny the company the use of its own capital. Credit collection period is, therefore, an important factor that may influence a company’s overall performance. Hence, this study explores the average collection period profile of 279 small and medium-sized manufacturing companies in Malaysia using the companies’ financial statements from 1999 through 2002. This paper also examines if different industry sector has different collection period. Then the study relates the average collection period to company financial performance as measured by operating profit on total assets. Finally, the study investigates if there is any relationship between collection period and company size. These relationships are then examined again after taking industry sub-sector into consideration.