THE IMPACT OF CREDIT MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRM (A CASE STUDY OF UNILEVER PLC, NIGERIA).
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THE IMPACT OF CREDIT MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRM (A CASE STUDY OF UNILEVER PLC, NIGERIA).
THE IMPACT OF CREDIT MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRM (A CASE STUDY OF UNILEVER PLC, NIGERIA).
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
1.0 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.
11
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.
12
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.
13
(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
14
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.
15
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
16
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:
THE IMPACT OF CREDIT MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRM (A CASE STUDY OF UNILEVER PLC, NIGERIA).
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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
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THE IMPACT OF CREDIT MANAGEMENT ON THE PROFITABILITY OF A MANUFACTURING FIRM (A CASE STUDY OF UNILEVER PLC, NIGERIA).