Credit Risk Management Practices by Oil Companies in Kenya

Patricia Gachambi

Abstract

Credit can be applied by firms to increase sales volumes and thus profitability. However it can lead to liquidity problems if not efficiently managed. The purpose of this study was to understand how oil companies managed their credit risk and the factors influencing their credit risk management approaches. From primary and secondary data collected, the study determined that most oil companies had formal credit management practices with documented credit policies and procedures which are reviewed biannually and fully constituted credit management departments. The study established that understanding of the financial exposure, default probability, industry norms and availability of credit information greatly influenced credit management practices. The study concluded that use of credit information from various sources was paramount in maintaining optimal credit risk levels.

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