CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In some years back,
cash management has become the most important sector of the financial
management in many trading organization. This is because without adequate cash,
a business can not exist. For this reason, cash is often des cribed as the life blood of a business and it
controls the means of maintaining commercial health. This serves. To emphasis
one vital message that liquidity is a pre-requisite for commercial life and
cash management is as natural as staying alive.
For single purpose of securing sales,
credit is extended to customers, credit sales, therefore, has been an essential
tool of modern competitive economic systems. It is an important marketing tool
to aid sales of goods.
Generally, it is made on open account
(i.e. no formal acknowledgement, of debt. Obligation through a financial
documents) but in order to achieve its aim of securing sales, it is essential
therefore, that it achieves this and that it does so profitably.
Credit management is the term given to
this, failure to apply such control, often leads to emergency collection of
debts, and since total debtors are more in value and nature with the daily
change in business there is no substitute for a proper credit management system
many business that gives credit to its customers.
A carefully considered credit policy is
needed by any company that sells goods or provides services on credit. The
state of development that this policy has reached will obviously vary from one
organization to another. In some companies goods may be sold on credit because
competitors provide generous credit facilities and as a result no real
consideration may have been given to the circumstances in which credit would be
given or not. In not more efficient company, however credit policy will almost
certainly have been considered much more seriously very often as part of the
overall aims and objectives of the organization.
This is because credit policy can have a
significance influence upon sales, credit policy provides framework to
determine whether or not to extend credit to a customer and how much credit to
extend. It operates through the credit standards and credit analysis. Credit
standard gives the basic criteria for the extension of credit to a customer.
This is done through some various mean like.
(a)
Credit
rating; looking into past records through
agencies and deducing the credit worthiness.
(b)
Credit
reference: data of the prospective debtors as
gather by bank, old customers e.t.c
On
the other hand, credit analysis involves procedures for evaluating credit
applicants
This will be proceeded by the collection
of information. The services of information may be through
Financial statement: at the time of
prospective sales the seller may request a financial statement as one of the
most desirable sources of information for credit analysis. Having collected the
credit information, be firm will make a credit analysis of the applicants.
Collection policy undertakes the
combination of collection procedure it also includes the expression of credit
terms. These are the terms and condition on which trade credit will be made
available. It stipulates the repayment terms of receivables. Credit terms
involve both the length of the credit period and the discounts given. This is
essential control that no business could afford to ignore. It takes the
liquidity problem of the business as its credit system and hence, the
significance of credit management is necessary to be studied.
1.2 STATEMENT OF PROBLEM
This research work is
aimed at finding out the significance of credit management in business
organization. Therefore, the research work looks into the under listed problems
which might be facing the organization in order to draw inferences on the best
solution to problem these are:
i)
Whether credit
extension have any effects on turnover
ii)
Whether credit
extension influence the stay of customer in a particular organization
iii)
Whether credit extension
have any positive or negative effect on the overall performance of the
organization
iv)
Whether credit extension
is the cause of cash shortage i.e. liquidity problem
1.3 OBJECTIVES OF THE STUDY
Sales is not complete
until cash is in the bill, therefore, the control of debtors in an organization
needs to be examined to know whether the aim of granting a credit might be
achieved after all. Hence, the main objectives of this research is to examine
the significance of credit management in business organization, others are
i)
To find out the extent
to which granting of credit increase sales.
ii)
To know the problem(s)
encountered as a result of credit sales due to violation of credit period.
iii)
To the effect of credit
sales in the overall performance of the organization
iv)
To examine the
relationship of credit management to the liquidity ratio of the organization
v)
To find out the extent
to which granting of credit influences the relationship between customers and
the organization
1.4 SIGNIFICANCE OF THE STUDY
The recent inflationary
condition which has many organizations into liquidity problem is the concern of
researcher. It has become more important than ever before to get money promptly
from trade debtors, but in most case this has probed to be a difficult task,
especially, where debtors have traditionally had little difficulty in obtaining
substantial periods of credit, what surprise the researcher really was. His
experience during his industrial attachment in global soap and detergent
The study is of immense important to all
and sundry, as a result, the research work will.
i.)
Broaden the scope of
the research of the researcher on the significant of credit management in
business organization
ii.)
It will be of
significance to any future researchers, who may want to carry out further study
on this typical area
iii.)
It will enable the
company to realize the impact of credit management in the overall performance
of the company.
iv.)
The study will
establish the fact that trade credit is advantageous to companies
1.5 SCOPE OF THE STUDY
Theoretically, this
study is limited to finding out the significance of credit management in
business organization. It considers how credit management can effectively help
the organization to achieve its aims and objectives.
Geographically, the study will be
limited to Global soap and Detergent Nigeria Limited and its vendors.
Though, I deally, the whole of Nigerian
is expected to be covered but due to the problems of time and cost, therefore
the findings is particular to all business organization in Nigeria.
1.6 DEFINITION OF TERMS
SIGNIFICANCE:
This simply means the importance of something
CREDIT:
this is the ability to buy or borrow in consideration of promise to pay within
a Stipulated period time, sometimes loosely specified following delivery.
MANAGEMENT: is
the executive authority the combined field of policy and administration, a team
of ten employees as a correlative decision making.
BUSINESS ORGANISATION: simply
denotes a trading environment with the division of work, and the allocation of
duties, authority and responsibility for the purpose of making profit.
1.7
THE
WORKING HYPOTHESIS
Hypothesis is a proposition of theory put forward to
account for and order a body of facts.
In scientific contexts, hypothesis are
seldom capable of direct test but are tested indirectly by deducing
consequences that are directly test.
There is null and alternative hypothesis
Null
hypothesis (HO) is the assumption that there is no difference between the
hypothesis and the sample result while the alternative hypothesis (Hi)
described explanations not covered by the null hypothesis (Ho)
In other words, null hypothesis (Ho) is
that, that is rejected in order to accept alternative hypothesis (Hi) and vice
versa as the case may be.
Based on the statement of the problem,
the following hypothesis have therefore been formulated for empirical study.
i. Ho: That
credit extension does not increases study
Hi: That
credit extension increases sales
ii. Ho: That credit extension does not help in
keeping/maintaining customer
Hi: that credit extension help in keeping/
maintaining customer
iii.
Ho: that overall
performance of company operating credit system does not depend on its credit
management
Hi: That
overall performance of company operating credit system depend on its credit
management
iv.
Ho. That credit
management does not help to avoid liquidity problem in organization
Hi: That
credit management helps to avoid liquidity problems of organization
1.8 HISTORICAL OF THE GLOBAL SOAP AND DETERGENT
LIMITED
Global
soap and detergent industries limited is a member of Doyin group of companies
and its first wholly indigenes in soap and detergent manufacturing company in . It was
in corporated on the 8th
October 1984 with its Head office in and the factory situate along As a-Dam
road Ilorin Kwara state. The company currently runs 18 depots through out
Nigeria owned by courageous and experience industrialist prince (Dr) Samuel
Adedoyin who had for many years been championing indigenous technology,
backward integration and use of local raw material in Nigeria the company was
established in response to the call of kwara state government on indigenes to
join hands with the state government to industrialized the state.
1.9 ORGANIZATION STRUCTURE OF GLOCAL SOAP AND
DETERGENT INDUSTRIALS LIMITED
The
organization chart of this industry (global soap and detergent industries limited)
was determined by the top management of the company it formulate the policies,
and coordinates finance, production and distribution. They carryout the
objectives and policies, which have been determined by the administration the
chart was drawn up in 1995 and it is still used today the chart is shown bellow.