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ABSTRACT
The aim of this research work is to appraise “The impact of credit
management on the profitability of a manufacturing firm focused on
Unilever Nigeria Plc Aba”. This is because; trade credit is a short term
source of finance and sometimes take the form of bills payable. The
statement problem of this research banks about the poor level of credit
management and also the problems which the firms encounter as a result
of high-rate of bad debts. The objective of this research study is to
highlight the effects of the credit management on the profitability of
the company as well as to highlight the advantages of effective
and efficient management of trade credit amongst others. Furthermore,
this research work will be of immense significance to the staff of
Unilever Nig. Plc Aba as well as the students and the researcher since
it aims at providing effective means of reducing default in collection
of accounts. Also, research questions like; could a company’s liquidity
problem be attributed to bad debt? On the average, how long do you allow
credit to customers? Etc. research instrument used were questionnaires
for the purpose of obtaining the desired result. In treating and
analyzing the data collected, an extensive use of tabular information
and percentages were of great importance. In the light of the findings
and conclusions of this work, the following recommendations are put up:
that then should be a regular review of credit policies to suit the
changes in the business environment and that an enquiry unit should be
established to take
responsibility for prospective credit’s assessments amongst others.
CHAPTER ONE
INTRODUCTION
1.1 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.
BRIEF HISTORY OF UNILEVER NIGERIA PLC ABA
Unilever Nigeria Plc is a public liability company quoted on the
Nigerian stock exchange since 1973 with Nigerian’s currently having 49
percent of equity holidays established in Nigeria. Unilever Nigeria Plc
started as a soap manufacturing company and is today’s one of the eldest
surviving manufacturing organization in Nigeria. The company changed
its name to “Unilever Nigeria Plc” in 2001.
The company is into the manufacture and marketing of household
toiletries and favorites which are manufactured in their various factory
locations in Nigeria. This is because they are so deeply committed to
meet the everyday needs of people everywhere in Nigeria. Such factors
are located at Lagos, Agbara, Oregun and Aba. Its staff strength is
about one thousand eight hundred (1,800) employers. They also have
indirect employees like contract staff and others who range from our
forty thousand employees throughout the country.
The company has also made provision for assistance in fields of health,
education, children welfare and potable water hygiene as part of its
social responsibility programme in the Nigerian communities.
Conclusively, Unilever Nigeria Plc from research has been found to be
involved in both credit and cash transactions with its customers.
1.2 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.
1.3 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.
1.4 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.
1.5 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?
1.6 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 contained in this research work and lastly, it will
also be of help to the entire nation by also enlightening them on the
importance of managing debt and finding the best possible measures in
settling debts as at when due.
1.7 SCOPE OF THE STUDY
This research work on the impact of credit management on the
profitability of a manufacturing firm is focused on Unilever Nigeria
Plc. Aba State.
1.8 LIMITATIONS OF THE STUDY
In the course of this research work, the researcher encountered some
bureaucratic problems which are very peculiar to Nigeria firms. These
factors are as follows:
1. Time: The time specified for submission for this research work was
obviously too short and as such, was unable to go about Unilever Nigeria
Plc thoroughly in carrying out this research.
2. Lack of knowledgeable and sincere personnels: Some of the officials
employed in most manufacturing firms including that of Unilever Nigeria
Plc has no knowledge on the ways of ensuring that credit management
works effectively and they are also not approachable because they place
themselves on a very high esteem and even when I was opportune to
interview them, there were lots of shortcomings from the basis such as
deliberate distortion of facts and amongst others.
3. Lack of Facilities: Research facilities such as transportation make
research easy and interesting. But it is often noted that Nigeria has a
poor transportation system which greatly affected me in conducting this
research.
1.9 DEFINITION OF TERMS
For easy comprehension of this research work, the writer intends to define the following terms:
1. Accounts Receivable:
This is the total sum which is being owed to Unilever Nig Plc by its customers at any particular accounting period.
2. Bad debts:
They are losses which are incurred by Unilever Nig Plc when some of its
customers fail to pay part or all the money being owed to the firm.
3. Trade credit:
Is any amount for goods and or resources which remain unpaid at the time
of purchase of such goods or services but which is deferred for future
use.
4. Liquidity:
This is used to describe the assets of firms which are easily convertible to cash.
5. Solvency:
We use this term to express a firm’s liabilities or obligations as they
fall due or simply put a state of being able to pay debts as they fall
due.
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