ACCOUNTS PAYABLE MANAGEMENT AND PROFITABILITY OF MANUFACTURING AND ALLIED COMPANIES LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA

Authors: Anne Wachera Waweru*, Dr Titus M. Mweta & Dr Justus Maina

ABSTRACT

This study examined the effect of accounts payable management, measured by the average payment period, on the profitability of manufacturing and allied companies listed at the Nairobi Securities Exchange (NSE), Kenya, where evidence on whether delaying supplier payments raises or erodes profitability is inconsistent. A positivist philosophy and an explanatory research design were adopted, and the study was anchored on Liquidity Theory, the Cash Conversion Cycle Theory and the Resource-Based View. A census of all nine listed manufacturing and allied firms was conducted for 2020–2025, and an unbalanced panel of 51 firm-year observations from audited annual reports was analysed. Model-selection tests supported a fixed-effects model with firm-clustered robust standard errors. The average payment period had a statistically significant negative effect on return on assets (β = −0.031, p = 0.016), and the sign and significance held under pooled OLS and random-effects estimation. The study concluded that longer supplier payment periods were associated with lower profitability, suggesting that the costs of delayed payment outweighed the financing benefit of trade credit. It recommends that manufacturers treat payables as a strategic decision coordinated between finance and procurement, negotiate credit terms rather than stretching payments, and that regulators encourage disclosure of supplier payment practices.

Keywords: Accounts payable management, average payment period, trade credit, profitability, return on assets, manufacturing firms, Nairobi Securities Exchange.

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