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.
Background of the Study
Statement of the Problem
Objective of the Study
Formulation of Research Hypotheses
Significance of the Study
Scope of the Study
Limitations of the Study
Definition of Terms
Reasons for granting credit
Setting credit policy and
Credit Policy Goals
Optimal Credit Policy
Credit Policy Variable Analysis
Collection Policy and Procedures
Establishing Internal Collection Procedure
Other Collection Procedures
Area of Study
Sources of Data
Population of the Study
Instrument of Data Collection
Validation of the Instrument
Reliability of the Instrument
Method of Data Analysis
Sample Design and Determination of
Presentation, Analysis and
Interpretation of Data
Analysis and Interpretation of Data
Test of Hypotheses
Test of Hypothesis 1
5.0 Summary of Findings, Conclusion and
Summary of Findings
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
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:
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.
The poor level of trade credit management is
reflected in the
liquidity and profitability position of the
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.
Furthermore, lack of experienced staff or
officers to tackle onerous and vital duties of managing debts
Also, limitation and inadequate training
opportunities for key treasury or supporting staff.
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
Other objectives include the following:
To appraise the effects of the credit management
on the profitability of the company.
Identifying the problems associated with credit
management in manufacturing firms.
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
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
procedures for effective collection of
To examine whether the credit management
principles applied by the firm is appropriate and effective.
To encourage staff to always be at an alert in
respect of knowing who their debtors are.
1.4 FORMULATION OF RESEARCH HYPOTHESES
hypotheses are formulated for the purpose of this research work.
Firm’s do not make some
profits when trade credit questions
Firm’s do make some profit
when they extend credit to customers.
Its credit information about customers does not help in
reducing bad debt losses.
Its credit information about customers help in reducing bad
Firms that sale on credit to their customers do not make
more sales than those who sale in cash.
Firm’s that sale on credit to their customers do make more
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.
Does credit management have any effect on the
profitability of a company?
Can trade credit be phased out completely from a
company’s business dealing?
How can a firm enforce collection of it’s over
Has any company through the aid of trade credit
facility achieved high profit index?
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.
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 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.
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.
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:
This is the total sum which is being owed to
Unilever Nig Plc by its customers at any particular accounting period.
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.
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.
This is used to describe the assets of firms which are easily
convertible to cash.
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.