CHAPTER ONE

IINTRODUCTION

1.1 Background to the Study

The aim of setting up any business organization is to maximize profit. This can be achieved through an effective management of its human and material resources so as to bring about increased output in order to achieve these noble objectives cam be able to remain buoyant financially so that pressing obligation of the organization will then be met.

        Credit management policies were encouraged by the rising size of the business. The industrial revolution in Europe in the early nineteenth century brought about technological advancement in most business organization. The result was an increase in production in terms of goods and services.

        There was then the need to sell the large volume of output that has been produced so it became absolutely important for business organizations to issue credit terms since most business men were unable to purchase whole bulk of the goods on cash basis.

        A business organization must set standard to facilitate the recovery of its cash on time. The word “credit” was derived form the Latin word ‘Coden’ which means to believe or trust.

        Credit period allowed for payment of goods and services already delivered to customers and faith. Facts are is important for pre-requisite in the management of credit because, if you trust somebody, that means you really have faith in that particular person. So faith serves as a motivating factor in the process of granting credit to costumers. This can only be charged if the customer should abuse the confidence imposed on him along the line. Therefore, there is usually an element of risk when carrying out credit sales since there is usually an uncertainty of payment. The nature of credit that the person involved in is at least in two dimensions.

         Firstly, he must obtain credit on time so as to meet up with production schedules in time of the wages of the workers carrying out the production of goods and services which it hopes to sell.

        Secondly, he must extend credit to his customers as a way of selling its, goods and services already produced. In the first case, the credit involves the business organization and a financial institution. While in the second case, the credit relationship is between the business organization and the customers.

        The lack of effective and efficient management in running the business gave birth to the idea of credit management, but the major point or area which the researcher focus anchors on is that, there is the need for credit management. This credit management is the point where the researcher developed his interest and studies it critically. Therefore, efficiency must be embraced in executing credit management since the granting of credit can be personal knowledge, published reports, information bureaus service and credit specialist within the outside and outside the organization.

1.2 Statement of the Problem

        Credit constitutes vital aspect of organization. The type of policy being employed by typical manufacturing industry towards maintaining a sound credit results in the improvement of quality of life and working environment. In spite of these favorable impacts on the various credit policies on the general well-being of firms, most organizations do not consider proper credit management as a vital tool for organizational survival.

    Organization that do not propagate a sound credit management policy always suffer the problems of having to write some portion of their revenue off as bad debt thereby write gradually leading to detriment effect on the organization.

1.3 Objective of the Study

The general objective of the study is to examine the credit management policy in a manufacturing company, focusing on Dangote Cement Company Plc. Obajana . this objective will be achieved by pursuing the following specific goals

              i.        To ascertain the extent to which credit management policy is being employed in Dangote Cement Company.

            ii.        To determine what extent it has helped in the general growth or profitability of organization.

          iii.        To investigate the appropriate policy to be adopted in the credit management of manufacturing companies.

           iv.        To examine the challenged faced by management in formulating the implementing effective credit management policies.

            v.        Finally, the study also aimed at providing reasonable suggestions on how credit can be best managed in Dangote Cement Company Plc. Obajana.

1.4 Research Questions

These are questions that the research work tends to find answer. These questions emanated from the topic of the study that the researcher tends to investigate some of the questions are:

               i.        How can credit be best managed in Dangote Cement Company Plc. Obajana?

              ii.        To what extent has credit helped in the general growth or profitability of organization?

            iii.        How can credit be best managed in Dangote Cement Company Plc Obajana? 

What is the policy to be adopted in the credit management of manufacturing companies?

1.5 Significance of the Study

The study aim to bring into stronger focus on the relevance of credit management policy and its application inn the growth and expansion of a business unit.

It is hoped that the findings of this study will expose the strength and weakness credit management in a manufacturing company.

  The study will also be of great important to further researchers who may want to carry out a research on the topic related to this very work.

It will also reveal to organizations on how to management credit in their various originations

1.6 Scope and Limitations of the Study

1.6.1 Scope of the Study

        The scope of the study covers the credit policy of Dangote Cement Coompany Plc, Obajana. The Cement Company has been critically studied here. It contains an investigation of likely problems that hinder the efficiency of a company. Hence, serious attempts are made to suggest possible solutions to the problems.

1.6.2 Limitations

        The limitations of the study have to do with the constraints faced in the course of carrying out this research work. The following were encountered when undertaking this research:

Attitude of Respondents: In conducting interview orally with some of the staff of Dangote Cement Company, they were initially not willing to disclose vital information for four of competitive vitals knowing secret of success.

Seasons: Since there is no control over nature in the course of carrying out this research, rain affected many movements at wish.

Time Constraints: Considering other academic work, which I have to attend to as well as other pressures there was not enough time for me to carry out research to fullest.

Financial Constraints: Owing to the inflationary trend in the country (Nigeria), the price of transportation and items for the purpose of this research have gone up astronomically, thereby having a pine on my major resource as students.  

1.7 Operational Definition of Terms

Credit: This can be define as a trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately (thereby generating debt), but instead arranges either to repay return those resources (or other materials of equal volume) at a later date. The resources provided may be financial or they may consist of goods or services.

Management: This is the process of utilizing an organization’s resourced to achieve specific objectives through the functions of planning, organizing, leading and controlling. In other word, management deals how we can utilize available resources to achieve planned objectives or goals.

Credit Management: This is concerned with the regulation control of the debt obligation of business organization.

Policy: This is laid down rule or regulations which an organization embraced in order to achieve its objectives.

Line of Credit: This is a form of arrangement between a commercial bank and a form that states the amount of unsecured short term credit, the bank will make available to the borrower provided the bank has enough for leading.

Revolving Credit Management: This is a credit that is automatically renewed after certain conditions are fulfilled. In other words, it means that there is no need for further application for another credit provided that the conditions specified in the credit are fulfilled accordingly.

Bad Debts: Signifies that losses which are loaned to individual or group of individuals that cannot recover back and have to be written off.

A Problem Loan: This is the type of which there are major breakdown in the recovery or collection.

Working Capital: The excess of current asset over current liabilities of business.

Net Working Assets: This is different current assets and current liabilities.

Liquid Capital: This is made up of capital that are easily convertible from one to another, this included stock, cash in hand and cash at bank.

Debtors: They are the individuals or group of individuals who owes another individual or groups of individuals.

Debts: This is the amount of money which individual or group of individuals have to pay to another individual or group of individuals.

1.8 Organization of Work

        This work has been divided in five chapters. Chapter one is on the introduction, it consists of statement of the problem, objectives of the study, statement of hypotheses, significance of the study scope and limitations of the study,  operational definition of terms as well as organization of work.

 Chapter two focuses on literature review which captures the definition of credit management, types of credit management amongst others.

        Chapter four presents and discussion the data collected and subsequently analyzed that data and also hypotheses tested.

        The final chapter which is chapter five shows conclusion on the study. It contains the summary of the study and also advanced suggestions and recommendations for further research.

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