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
TABLE OF CONTENTS
Table of contents
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objective of the Study
1.4 Formulation of Research Hypotheses
1.5 Research Questions
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitations of the Study
1.9 Definition of Terms
2.0 LITERATURE REVIEW
2.1 Reasons for granting credit
2.2 Setting credit policy and Regulation
2.2.1 Credit Standards
2.2.2 Credit Terms
2.2.3 Collection Efforts
2.3 Credit Policy Goals
2.3.1 Optimal Credit Policy
2.4 Credit Policy Variable Analysis
2.4.1 Credit Analysis
2.4.2 Credit Scoring
2.4.3 Collection Policy and Procedures
2.4.4 Establishing Internal Collection Procedure
2.4.5 Other Collection Procedures
2.4.6 Monitoring Receivables
3.0 RESEARCH METHODOLOGY
3.1 Research Design
3.2 Area of Study
3.3 Sources of Data
3.4 Population of the Study
3.5 Instrument of Data Collection
3.6 Validation of the Instrument
3.7 Reliability of the Instrument
3.8 Method of Data Analysis
3.9 Sample Design and Determination of Sample Size
4.0 PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.1 Analysis and Interpretation of Data
4.2 Test of Hypotheses
4.3 Test of Hypothesis 1
5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
1.1 BACKGROUND OF THE STUDY
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.
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
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
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.
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
many problems companies encounter as a result of poor credit management.
Thus, the problems inherent in this research study as investigated are
(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.
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
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.
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
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
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
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
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
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
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.
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
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:
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:
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
This is used to describe the assets of firms which are easily convertible to cash.
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