CREDIT MANAGEMENT AND LIQUIDITY OF MANUFACTURING COMPANY CHAPTER ONE INTRODUCTION

1.0           BACKGROUND OF THE STUDY

Credit management is a term used to identify accounting functions usually conducted under the umbrella of accounts receivables. Essentially, this collection of processes involves qualifying the extension of credit to a customer, monitors the reception and logging of payments on outstanding invoices, the initiation of collection procedures, and the resolution of disputes or queries regarding charges on a customer invoice. When functioning efficiently, credit management serves as an excellent way for business to remain financially stable.

Competent credit management seeks to not only protect the vendor from possible losses, but also protect the customer from creating more debt obligations that cannot be settled in a timely manner.

Several factors are used as part of the credit management process to evaluate and qualify a customer for the receipt of some form of commercial credit. This may include; gathering data on the potential customer’s, current financial condition including the current credit score..

1.1           STATEMENT OF THE PROBLEM

There are many problems companies encounter as a result of poor credit management. Thus, the problems inherent in this research study as investigated are as follows:

(1)            There is a high rate of bad debts because some corporations take advantage of the credit that is extended to them and find themselves not able to pay debt later.

(2)            The poor level of trade credit management is reflected in the liquidity and profitability position of the firm.

(3)            The inability of business policy makers to certainly say how effectively, credit management other makes or mars the performance of the business in terms of profitability.

(4)            Furthermore, lack of experienced staff or officers to tackle onerous and vital duties of managing debts appropriately.

(5)            Also, limitation and inadequate training opportunities for key treasury or supporting staff.

(6)            Finally, failure to comply with the agreed terms of agreement with the company upon when paying the debt.

1.2           OBJECTIVE OF THE STUDY

The main objective of this study is to appraise the impact of credit  management on the profitability of manufacturing firms and also providing effective means of reducing default in collection of accounts.

Other objectives include the following:

(1)            To appraise the effects of the credit management on the profitability of the company.

(2)            Identifying the problems associated with credit management in manufacturing firms.

(3)            To investigate the advantages of effective and efficient management of trade credit.

(4)            To also show how to reduce losses caused by bad debt through the use of effective and sound collection policy and procedures.

(5)            It is also very necessary for a firm to critically evaluate the individual account of the customers to enable it obtain the necessary credit

information         about      them      and     to    devise      appropriate          collection procedures for effective collection of account.

(6)            To examine whether the credit management principles applied by the firm is appropriate and effective.

(7)            To encourage staff to always be at an alert in respect of knowing who their debtors are.

1.3           FORMULATION OF RESEARCH HYPOTHESES

The following hypotheses are formulated for the purpose of this research work.

Ho:      Firm’s do not make some profits when trade credit questions

H1:      Firm’s do make some profit when they extend credit to customers.

Ho:      Its credit information about customers does not help in reducing bad debt losses.

H2:      Its credit information about customers help in reducing bad debt losses.

Ho:      Firms that sale on credit to their customers do not make more sales than those who sale in cash.

H3:      Firm’s that sale on credit to their customers do make more sales than those who save in cash.

1.4           RESEARCH QUESTIONS

Base on the problems which this research work is aimed at finding solutions to, the following questions are put forward in finding solutions to the problems.

1.                 Does credit management have any effect on the profitability of a company?

2.                 Can trade credit be phased out completely from a company’s business dealing?

3.                 How can a firm enforce collection of it’s over due debts?

4.                 Has any company through the aid of trade credit facility achieved high profit index?

5.                 Can the liquidity and profitability objectives of the company be achieved through the use of credit facilities?

1.5           SIGNIFICANCE OF THE STUDY

This research work will be of great significance to the staff of Unilever Nigeria Plc. It will go a long way in enlightening them on the concept of credit management accounting as well as the best strategies to be adopted to monitor debts. This research work will as well be of benefit to students and researchers because it would widen their scope from the information

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