Effect of Credit Management on the Financial Performance of Guinness Nigeria Plc (2)

ABSTRACT

This project work appraises effect of credit management on the financial performance of Guinness Nigeria Plc. The study was carried out in order to assess the effect of credit management on the financial performance of Guinness Nigeria Plc. Ex-post facto research design was adopted for the study. Data were collected from the annual reports and accounts of Guinness Nigeria Plc for a period of ten years ie (2009-2018). Regression analysis and statistical non-parametric test called analysis of variance (ANOVA) was used for data analysis and test of hypotheses formulated for the study. The study finds out that credit payment period does not affect financial performance of Guinness Nigeria Plc, there is significant correlation between receivables collection period and financial performance of Guinness Nigeria Plc and there is no significant relationship between receivables turnover and financial performance of Guinness Nigeria Plc.

Table of Contents

Title Page                                                                                                                  i

Approval Page                                                                                                        ii

Dedication                                                                                                                iii

Acknowledgement                                                                                                            iv

Abstract                                                                                                                    v

Table of Contents                                                                                                   vi

CHAPTER ONE: INTRODUCTION

1.1            Background of the Study                                                                  1

1.2            Statement of  Research Problem                                             2

1.3            Objectives of the  Study                                                          3

1.4            Research Questions                                                                 4

1.5            Statement of  Hypotheses                                                                 4

1.6            Significance of the Study                                                                  4

1.7            Scope of the Study                                                                            5

1.8            Limitations of the Study                                                                    6                                                                

CHAPTER TWO: LITERATURE REVIEW

2.1      Conceptual Framework                                                                           7

2.1.1  Concept of Credit Management                                                            7

2.1.2  Reasons for Written Credit Policy                                                         9

2.1.3  Determinants for Granting Credit to Customers                               10

2.1.4  Credit Control Strategies                                                                          12

2.1.5 Components of Credit Management and Financial Performance            13

2.2      Theoretical Framework                                                                            15

2.3      Review of Empirical Studies                                                                    16                                          

CHAPTER THREE: RESEARCH METHODOLOGY

3.1      Design of the Study                                                                                   23

3.2      Sources and Instruments of Data Collection                                      23

3.3      Research Population and Sample Size                                                 23

3.4      Techniques of Data Analysis and Justification                                    23

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1      Data Presentation                                                                                      25

4.2      Data Analysis and Interpretation                                                           25

4.3      Test of Hypotheses                                                                                    28

4.4      Discussion of Findings                                                                               30

4.5      Summary of Findings                                                                                32

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1      Summary                                                                                                      33

5.2      Conclusions                                                                                                  34

5.3      Recommendations                                                                                     34

References                                                                                                   36

Appendix                                                                                                      39

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

The strength of financial system has central role in the country (Das & Ghosh, 2017) as its failure can upset economic development of the country. Firm’s financial performance is the ability to create new resources, from day to day operation over a set period of time and being gauge by net income and cash from business (Abiola & Samuel, 2014).

A key requirement for efficient credit management is the ability to intelligently and resourcefully manage customer credit lines. In order to reduce exposure to bad debt, over-reserving and bankruptcies, banks must have greater insight into customer financial strength, credit score history and changing payment pattern. Credit management starts with the sale and does not stop until the complete and final payment has been received.  It is as vital as part of the deal as closing the sale. In fact, a sale is in principle not a sale until the money has been collected. It follows that principles of good lending shall be concerned which ensures so far as possible that the borrower will be able to make scheduled payments with interest in full and within  the  required  moment  in  time  otherwise,  the profit from interest earned is reduced or even wiped out by the bad debt when the customer eventually defaults. Credit management is concerned principally with managing debtors and financing debts. The objectives of credit management can be stated as safe guarding the company’s investments in debtors and optimizing operational cash flows. Policies and procedures must be useful for granting credit to customers, collecting payment and limiting the risk of non-payments (Wadike, Abuba & Wokoma, 2017).

With the increase in bankruptcy rates, the probability of incurring losses has risen. Economic pressures and business practices are forcing organizations to slow down payments while on the other hand resources for credit management are reduced in the face of the higher expectations. Therefore, it is a necessity for credit professionals to seek for opportunities to implement proven top practices (Kagoyire & Shukla, 2016).

Sound credit management is a requirement for a firm’s stability and continuing profitability, while worsening credit quality is the most frequent cause of poor financial performance and condition. The failure or success of any manufacturing company will to a large level affect its financial performance of which Guinness Nigeria Plc is not an exemption.

Therefore, in view of the above, this study shall examine the effect of credit management on the financial performance of Guinness Nigeria Plc.

1.2     Statement of Research Problem

The growth in economic activities as currently witnessed in Nigeria; in our present democratic government with its attendant limited financial resources available to the operators of the market has no doubt brought about increase in credit transaction. The impact depends on the skill and prowess with which the companies manage their credit sales. Beckan & Richard (2011) have seen that most companies after granting credit sales rely on them as assets without providing adequately for possible bad and doubtful debts. With this situation, the financial statements of such companies obviously will lack true and fair view because of the fact that the amount of trade debtors cannot be fully realized.

In the same vein liquidity problem is not left out when granting credit sales. This arises from over investment in receivables especially when the receivables are of high risk class. A company suffering from liquidity problem implies that the cost of obtaining funds from other sources may be high and a credit sale beyond the optimal level of credit is dangerous. On the other hand, sales level and profitability are reduced as a result of high or tight credit policy or not granting credit at all (Collins & Johnny, 2017).

1.3     Objectives of the Study

The main objective of this study is to appraise the Effect of Credit Management on the Financial Performance of Guinness Nigeria Plc. Other specific objectives are to:

i.                   Examine the extent to which credit payment period affect financial performance of Guinness Nigeria Plc.

ii.                 Assess the effect of receivables collection period on the financial performance of Guinness Nigeria Plc.

iii.              Evaluate the relationship between receivables turnover on the financial performance of Guinness Nigeria Plc.

1.4     Research Questions

The following research questions shall guide this study:

i.                   To what extent does credit payment period affect financial performance of Guinness Nigeria Plc?

ii.                 Does receivables collection period affect the financial performance of Guinness Nigeria Plc?

iii.              To what extent does receivables turnover affect the financial performance of Guinness Nigeria Plc?

1.5     Statement of Hypotheses

The following hypotheses are formulated so as to enable the study achieve the objectives of this research:

H₀₁: Credit payment period does not have significant effect on financial performance of Guinness Nigeria Plc.    

H₀₂: Receivables collection period does not have significant effect on the financial performance of Guinness Nigeria Plc

H₀₃:  Receivables turnover does not have significant effect on the financial performance of Guinness Nigeria Plc.

1.6     Significance of the Study

The study outcome will be of significance to various stakeholders. Academicians and researchers will  use  the  findings  to conduct further  research  in  areas  that  the  study  found  unique. Researchers will also use the empirical studies found in the current study for their research. The research will equally use the study to enrich the body of knowledge in the finance discipline and bridge the gap existing in the study of credit management; the current study will make contributions to improve the practice and the existing knowledge on financial performance and credit knowledge.

From a theoretical view point, the study provides a comprehensive framework of looking at the changes occurring in credit management and financial performance. The study will also assist policy makers to make better policies in the sector. The findings in this study would be of great help to those firms under study and to others in the financial sector. Even the organizations from other sectors may greatly benefit from the research results since the findings will help firms in all sectors reorganize their credit management policies and to critically review their operations so as to come up with better processes of dealing with credit systems.

1.7     Scope of the Study

This research work covers the effect of credit management on the financial performance of Guinness Nigeria Plc. The research work examines how credit management affects financial performance of Guinness Nigeria Plc under consideration (2009-2018).

1.8     Limitations of the Study

Financing constrain and time availability coupled with other academic activities are the factors which limit the breath and extent of this study.