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. 


 
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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. 
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 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. 
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(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
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          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. 


 
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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: