Credit Management

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THE EFFECT OF CREDIT MANAGEMENT ON THE LIQUIDITY POSITION OF A MANUFACTURING COMPANY

BEING PROPOSAL SUBMITTED

BY

AMUDA, OLUWATOYIN ABAYOMI

TO

THE DEPARTMENT OF MANAGEMENT AND ACCOUNTING
LADOKE AKINTOLA UNIVERSITY OF TECHNOLOGY,
OGBOMOSO.

IN PARTIAL FULLFILMENT OF M.TECH IN MANAGEMENT AND ACCOUNTING

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY
According to Pandey (2004), Credit is a marketing tool for expanding sales. Credit sales to customers however, must be well monitored because regardless of an organization’s share of the market and demand for its products, if there are no measures put in place to regulate sales made to customers on credit, there could be problems especially those related to liquidity. Thus, the measures put in place to do this is known as credit management strategy which is employed by manufacturers and retailers to promote good credit among the creditworthy and deny it to delinquent borrowers. This will both increase sales and decrease bad debts, thus improving a company's cash flow. Credit management is an alternative term for credit control. Credit control is an important component in the overall profitability of many firms. Thus, for any businesses which provide "open terms" policy to their customers, it is important to have a cap on the amount of credit given. Every customer is given different amount of credit in relation to their sales turnover. These credits are monitored on a daily, weekly or monthly basis according to individual companies’ requirement. A person from the finance department or marketing is appointed to ensure the total invoice value at any point of time do not exceed the credit amount agreed. The importance of credit management therefore to any business organization cannot be over emphasized because it is a factor that has a strong influence on the cash inflow of an organization from its sales activities which is very critical to any business organization. Credit management is an...
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