Strengthening Working Capital through Debtors Management and Its Effect on Financial Sustainability of Non-Financial Firms Listed in East Africa

Joseph Muthama Ndiku, Willy Muturi, Joshua Matanda Wepukhulu and Richard Ngali
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Joseph Muthama Ndiku: Jomo Kenyatta University of Agriculture and Technology, Kenya.
Willy Muturi: Jomo Kenyatta University of Agriculture and Technology, Kenya.
Joshua Matanda Wepukhulu: Jomo Kenyatta University of Agriculture and Technology, Kenya.
Richard Ngali: Jomo Kenyatta University of Agriculture and Technology, Kenya.

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Abstract: The paper sought to assess the effect of debtors management as an aspect of working capital management on financial sustainability of non-financial firms listed in East Africa. Debtors management which was measured through the average debt collection period is an essential working capital management practice that ensures customers pay outstanding invoices early for a stable cashflow. The study comes amid declining financial sustainability among most of the listed firms, whereby despite the short-term profitability, most of the firms are unable to maintain a strong financial basis for long-term. The study was anchored on agency theory that upholds the essence of managers to uphold shareholders' interest in liquidity and long-term financial sustainability by not extending generous credit terms to increase sales and market share which are short-term gains. Through an explanatory correlational research design, the study targeted 47 non-financial listed firms in Kenya, Uganda, Rwanda and Tanzania. Secondary data was collected using a panel data collection sheet for a ten-year period ranging from 2014 to 2023. The data was analysed using Stata software via descriptive and inferential statistics. The study found significant variations in debtors management among East Africa's listed non-financial firms, with average collection periods ranging from a few days to over a year. On average, firms took more than three months to collect payments, exposing them to liquidity risks and potential bad debts. The analysis confirmed that efficient debtor management significantly enhances financial sustainability (R2 = 0.5208; β = 0.214; P-value = 0.0000<0.05). The study concludes that effective receivables' policies among the listed non-financial firms are critical for stable cash flows and recommends stricter credit controls, timely debt recovery strategies, and continuous monitoring to strengthen financial sustainability.

Date: 2026-02-23
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Published in Journal of Economics and Trade, 2026, 11 (1), pp.183-195

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