Evaluation of Credit Management in the Manufacturing Company

Topics: Debt, Credit, Credit rating Pages: 34 (8586 words) Published: May 14, 2010
Title page
Approval page
Table of Content

1.1Background of the Study
1.2Purpose of the Study
1.3Scope and Limitation of the Study
1.4Significance of the Study
1.5Definition of Terms

2.0Literature Review
2.1Development of Credit in Business Management
2.2Importance of Trade Credit
2.3Review of the Related Topic
2.4Legal Consideration for Effectiveness of Credit Control and Management 2.5Consideration for Effectiveness of Credit Control and Management 2.6Credit Determination Factors
2.7Credit Costs
2.8Risk Evaluation
2.9Determination of Credit Limits
2.10Collection Procedure
2.3.0Appraisal of the Efficacy of Credit Control and Managements

3.0Research Methodology
3.1Historical Background of the case Study
3.2The Research Design
3.3Method of Data Collection

4.0Data Presentation
4.1Data Interpretation
4.2Data Analysis
4.3The Data Collection Procedure
5.0Summary and Observation


A manufacturing company is a company that is engaged in the transformation and conversion of raw materials (inputs) into finished product known as outputs.
Economics wise, manufacturing could be said to be the second stage of production. Therefore, a manufacturing company turns raw materials or an input into finished goods, mostly with the objectives of maximizing profits.

For the objective of any manufacturing company to be realized, goods produced will have to be sold out for the consumption of the people. This is done in mist cases through sales on credit (trade credit) or sales con cash basis (cash sales)

Trade credit can be defined as the buying and selling of goods and services in which payment is postponed to a future date according to the agreement between the buyers and the sellers. Therefore, it can be looked at in two ways viz: customer credit and suppliers credit. Customers credit can be defined as an outstanding debt owned by customers on both open account and against note on balance sheet, while suppliers is the outstanding amount owned to suppliers on both open account and against notes on balance sheet

The entries of transaction in a manufacturing company comprising a complete circle often runs as follows:

This represent the circular flow of capital from cash to inventory to be securable to cash against
Trade credit involve costs and benefits, benefits include expansion of sales, retention of customers and attraction of new customers. Cost of trade includes bad debt, losses, production and selling cost, administrative expenses and opportunity cots. For trade credit to contribute to the objective of any manufacturing company, its benefits must override the cost and the credit terms must censure liquidity at all times. Therefore, in order to maximize the value of the firm, there is need for credit management which is the theme of this project

Trade credit could be termed as the lubricant of commerce. Historically, it precedes the development of financial institution and rose out of special ties formed in the ordinary commercial activities. It is granted because of suppliers readiness to assume a grate degree of risk. Recently, its development as a result of liquidity has squeezed the Nigeria economy. Many companies turnover have reduced drastically, thus making these organization to engage the various forms of bonanza and competitions. Furthermore, in order to boost sales, there is the need for trade credit.

Credit management plays an important role in any manufacturing company. This is the situation particularly where there is a perfect competition and one wants to keep his factory busy for long and retain its share of the market

Infact, credit management is a means of maintaining the health, growth and continuity of the business .the achievement of...
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