CREDIT MANAGEMENT STRATEGIES AND FINANCIAL PERFORMANCE OF INDUSTRIAL GOODS SECTOR IN NIGERIA
Keywords:
Credit Management Strategies, Credit Sales, Industrial Goods, Liquidity.
Abstract
The influence of credit management methods on the liquidity and profitability of listed industrial goods firms in Nigeria was investigated in this study. It was decided to use a descriptive survey study design. The sample population for which copies of the questionnaire were distributed was 400 respondents, representing 65% of the population. The participants provided 355 valid responses, which were examined. For descriptive statistics, one-way ANOVA was utilized, and to test the hypotheses, a basic regression analysis method was applied. The results showed that the credit risk assessment, debt recovery strategy, and receivable collection policy sub-variables have a positive and statistically significant impact on the liquidity sub-variables - ability to pay, level of bad debt, and cash inflow. Liquidity had a positive and statistically significant effect on profitability. The study thus, suggest that companies in the industry should enhance their liquidity in order to achieve the targeted profit level by having effective credit terms and proper risk assessment strategy, designing and implementing debt recovery plans to aid collection of the overdue debt, adopting a stringent credit collection method, and employing and retained qualified accountants and credit administrators with excellent knowledge of credit control techniques.
JEL Classification Codes: F65.
References
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Agu, O. C. & Basil, C. O. (2013). Credit management and bad debt in Nigeria commercial Banks: Implication for development. Journal of Humanities and Social Science, 12(1), 47-56.
Akinleye, G. T., & Olarewaju, O. O. (2019). Credit Management and Profitability Growth in Nigerian Manufacturing Firms. Acta Universitatis Danubius: Oeconomica, 15(2), 445-456.
Akinsulire, O. (2017). Financial management (7th ed.). Lagos: Ceemol Nigeria Limited.
Alalade, S., Binuyo, O. & Oguntodu, A. (2014). Managing credit risk to optimize banks profitability: A Survey of selected banks in Lagos State, Nigeria. Research Journal of Finance and Accounting, 5(18), 76-84.
Ali, L., & Dhiman, S. (2019). The impact of credit risk management on profitability of public sector commercial banks in India. Journal of Commerce and Accounting Research, 8(2), 86-92.
Banu, M. H., Sayaduzzaman, M., & Sil, S. C. (2021). The Impact of Credit Risk Management Indicators on Profitability Attributes: Evidence from the State-Owned Commercial Banks in Bangladesh. American Journal of Trade and Policy, 8(3), 215-224.
Chaudhury, N. J. (2020). The efficacy of liquidity management of Bangladeshi commercial banks: does liquidity underscore bank profitability?. International Journal of Financial Services Management, 10(3), 268-283.
Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies: The financial Statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.
Ezejiofor, R. A., Adigwe, P. K., & John-Akamelu, R. C. (2015). The effect of credit management on liquidity and profitability positions of a manufacturing company in Nigeria. European Journal of Research and Reflection in Management Sciences, 3(3), 32 – 48.
Ferris, J. S. (1981). A transactions theory of trade credit use. Quarterly Journal of Economics, 96(2), 243 - 270
Ifurueze, M. S. K. (2013). The impact of effective management of credit sales on profitability and liquidity of food and beverage industries in Nigeria. Global Journal of Management and Business Research, 13(2), 29-38.
Ismail, R. (2016). Impact of liquidity management on profitability of Pakistani firms: A case of KSE-100 Index. International Journal of Innovation and Applied Studies, 14(2), 304.
Jindal, D., Jain, S., & Vartika, K. (2017). Effect of receivables management on profitability: A study of commercial vehicle industry in India. Management, 2(2), 246-255.
Kaitibi, D. B., Ganawah, E. T. J., Yokie1, M. A., Jalloh, M., & Koroma, B. M. (2018). Impact of efficient credit management on profitability of commercial banks in Sierra-Leone. Open Journal of Business and Management, 6(1), 139-150.
Kagoyire, A., & Shukla, J. (2016). Effect of credit management on performance of commercial banks in Rwanda (a case study of Equity Bank Rwanda Ltd). International Journal of Business and Management Review, 4(4), 1-12,
Kamal, A. A. (2021). CREDIT Risk Management and Profitability (Pat) Of Deposit Money Banks (DMBS) In Nigeria. Ede Journal of Business (EJOB), 8(1), 54-65.
Khan, M. A., Tragar, G. A., & Bhutto, N. A. (2012). Determinants of accounts receivable and accounts payable: a case of Pakistan textile sector. Interdisciplinary Journal of Contemporary Research in Business, 3(9), 240-251.
Kumaraswamy, S., & George, S. (2019). Trade credit management and firm profitability of Saudi manufacturing firms. Polish Journal of Management Studies, 20(1), 243-253.
Kroes, J. R., & Manikas, A. S. (2014). Cash flow management and manufacturing firm financial performance: A longitudinal perspective. International Journal of Production Economics, 148, 37-50. http://dx.doi.org/10.1016/j.ijpe.2013.11.008
Kungu, J. N., Wanjau, K. L., Waititu. A. G., & Gekara, G. M. (2014). Effects of credit policy on profitability of manufacturing firms in Kenya. IOSR Journal of Economics and Finance (IOSR-JEF), 2(4), 01-07
Kwenda, F. (2014). Trade credit in Zimbabwe's economic recovery. Mediterranean Journal of Social Sciences, 5(2), 431- 39.
Madushanka, K. H. I., & Jathurika, M. (2018). The impact of liquidity ratios on profitability. International Research Journal of Advanced Engineering and Science, 3(4), 157-161.
Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2014). Trade credit and SME profitability. Small Business Economics, 42(3), 561-577.
Muritala, T. A., & Taiwo, A. S. (2013). An empirical evidence on impact of credit management and Liquidity position on profitability of Nigerian banking sector. Management and Administrative Sciences Review, 2(2), 233-242
Nwanna, I. O., & Oguezue, F. C. (2017). Effect of credit management on profitability of deposit money banks in Nigeria. IIARD International Journal of Banking and Finance Research, 3(2), 137 – 160.
Ofoegbu, G. N., Duru, N., & Onodugo, V. (2016). Liquidity Management and Profit Performance of Pharmaceutical. International Journal of Management Sciences and Business Research, 5(7), 1-13.
Okpala, K. E. (2017). Strategic Budgetary System and Infrastructure Development of the Power sector in Nigeria, 1981-2015. (Unpublished Ph.D. thesis, Department of Business Administration and Marketing of Babcock Business School.
Okpala, K. E., Osanebi, C., & Irinyemi, A. (2019). The impact of credit management strategies on liquidity and profitability. Journal of Behavioural Studies, 1(1), 1-14.
Olabisi, J., Oladejo, D. A., Adegoke, J. F., & Abioro, M. A. (2019). Credit Management Policy and Firms’profitability: Evidence from Infant Manufacturing Firms in Southwest, Nigeria. Contemporary Economy Journal, 4(4), 59-69.
Olarewaju, O. O., & Akinleye, G. T. (2018). Credit Management and Profitability Growth as a Measure of Manufacturing Firm's Growth in Nigeria. Acta Universitatis Danubius. Œconomica, 15(2), 445-456
Onuora, J. K., Nwafili, I. S. (2017). The Effects of Credit Management on Profitability of manufacturing firm in Nigeria. (A Study of Selected Companies in Nigerian Stock Exchange). Research Journal of Finance and Accounting, 8(10), 142 -154
Owolabi, S. A., & Obida, S. S. (2012). Liquidity management and corporate profitability: Case study of selected manufacturing companies listed on the Nigerian Stock Exchange. Business Management Dynamics, 2(2), 10 – 25.
Oyadonghan, K. J., & Bingilar, P. F. (2014). The impact of effective credit policy on liquidity of manufacturing companies in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(7), 88-100.
Raymond, A. E., & Adigwe, P. K. (2015). The credit management on liquidity and profitability positions of a manufacturing company in Nigeria. European Journal of Research and Reflection in Management Sciences, 3(3), 32-48.
Sabenhang, H. K. (2015). Credit Management and Its Impact on Profitability of Joint Venture Banks in Nepal (Doctoral dissertation, Faculty of Management Tribhuvan University).
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative Analysis, 9(4), 643 - 657.
Singh, S., & Sharma, D. K. (2018). Impact of credit risk on profitability: A study of Indian public sector banks. International Journal of Research in Economics and Social Sciences (IJRESS), 8(2), 492-498.
Taiwo, J. N., Ucheaga, E. G., Achugamonu, B. U., Adetiloye, K., & Okoye, O. (2017). Credit risk management: Implications on bank performance and lending growth. Saudi Journal of Business and Management Studies, 2(5B), 584-590.
Tuladhar, R. (2017). Impact of credit risk management on profitability of Nepalese commercial banks (Doctoral dissertation, Western Sydney University (Australia).
Uwalomwa, U., Uwuigbe, O. R. & Oyewo, B. (2015). Credit management and bank performance of listed banks in Nigeria. Journal of Economics and Sustainable Development, 6(2), 27-32.
Uwuigbe, U., Uwuigbe, O. R., & Oyewo, B. (2015). Credit management and bank performance of listed banks in Nigeria. Journal of Economics and Sustainable Development, 6(2), 27-32.
Uzoh, C. A. (2012). The impact of credit management on the profitability of a manufacturing firm: A Case study of Unilever Plc Aba, Nigeria. (Unpublished M.Sc. Thesis, Department of Accounting, University of Nigeria, Enugu, Nigeria.
Wireko, D., & Forson, A. (2017). Credit Risk Management and Profitability of Selected Rural Banks in Upper East Region. Journal of Excellence, Leadership, & Stewardship, 6(2), 43-55.
Zamira, V. (2016). The impact of credit risk management on the banking profitability: a Survey of the theoretical and empirical literature. European journal of economics and management sciences, (2), 48-51.
Agu, O. C. & Basil, C. O. (2013). Credit management and bad debt in Nigeria commercial Banks: Implication for development. Journal of Humanities and Social Science, 12(1), 47-56.
Akinleye, G. T., & Olarewaju, O. O. (2019). Credit Management and Profitability Growth in Nigerian Manufacturing Firms. Acta Universitatis Danubius: Oeconomica, 15(2), 445-456.
Akinsulire, O. (2017). Financial management (7th ed.). Lagos: Ceemol Nigeria Limited.
Alalade, S., Binuyo, O. & Oguntodu, A. (2014). Managing credit risk to optimize banks profitability: A Survey of selected banks in Lagos State, Nigeria. Research Journal of Finance and Accounting, 5(18), 76-84.
Ali, L., & Dhiman, S. (2019). The impact of credit risk management on profitability of public sector commercial banks in India. Journal of Commerce and Accounting Research, 8(2), 86-92.
Banu, M. H., Sayaduzzaman, M., & Sil, S. C. (2021). The Impact of Credit Risk Management Indicators on Profitability Attributes: Evidence from the State-Owned Commercial Banks in Bangladesh. American Journal of Trade and Policy, 8(3), 215-224.
Chaudhury, N. J. (2020). The efficacy of liquidity management of Bangladeshi commercial banks: does liquidity underscore bank profitability?. International Journal of Financial Services Management, 10(3), 268-283.
Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies: The financial Statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), 81-90.
Ezejiofor, R. A., Adigwe, P. K., & John-Akamelu, R. C. (2015). The effect of credit management on liquidity and profitability positions of a manufacturing company in Nigeria. European Journal of Research and Reflection in Management Sciences, 3(3), 32 – 48.
Ferris, J. S. (1981). A transactions theory of trade credit use. Quarterly Journal of Economics, 96(2), 243 - 270
Ifurueze, M. S. K. (2013). The impact of effective management of credit sales on profitability and liquidity of food and beverage industries in Nigeria. Global Journal of Management and Business Research, 13(2), 29-38.
Ismail, R. (2016). Impact of liquidity management on profitability of Pakistani firms: A case of KSE-100 Index. International Journal of Innovation and Applied Studies, 14(2), 304.
Jindal, D., Jain, S., & Vartika, K. (2017). Effect of receivables management on profitability: A study of commercial vehicle industry in India. Management, 2(2), 246-255.
Kaitibi, D. B., Ganawah, E. T. J., Yokie1, M. A., Jalloh, M., & Koroma, B. M. (2018). Impact of efficient credit management on profitability of commercial banks in Sierra-Leone. Open Journal of Business and Management, 6(1), 139-150.
Kagoyire, A., & Shukla, J. (2016). Effect of credit management on performance of commercial banks in Rwanda (a case study of Equity Bank Rwanda Ltd). International Journal of Business and Management Review, 4(4), 1-12,
Kamal, A. A. (2021). CREDIT Risk Management and Profitability (Pat) Of Deposit Money Banks (DMBS) In Nigeria. Ede Journal of Business (EJOB), 8(1), 54-65.
Khan, M. A., Tragar, G. A., & Bhutto, N. A. (2012). Determinants of accounts receivable and accounts payable: a case of Pakistan textile sector. Interdisciplinary Journal of Contemporary Research in Business, 3(9), 240-251.
Kumaraswamy, S., & George, S. (2019). Trade credit management and firm profitability of Saudi manufacturing firms. Polish Journal of Management Studies, 20(1), 243-253.
Kroes, J. R., & Manikas, A. S. (2014). Cash flow management and manufacturing firm financial performance: A longitudinal perspective. International Journal of Production Economics, 148, 37-50. http://dx.doi.org/10.1016/j.ijpe.2013.11.008
Kungu, J. N., Wanjau, K. L., Waititu. A. G., & Gekara, G. M. (2014). Effects of credit policy on profitability of manufacturing firms in Kenya. IOSR Journal of Economics and Finance (IOSR-JEF), 2(4), 01-07
Kwenda, F. (2014). Trade credit in Zimbabwe's economic recovery. Mediterranean Journal of Social Sciences, 5(2), 431- 39.
Madushanka, K. H. I., & Jathurika, M. (2018). The impact of liquidity ratios on profitability. International Research Journal of Advanced Engineering and Science, 3(4), 157-161.
Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2014). Trade credit and SME profitability. Small Business Economics, 42(3), 561-577.
Muritala, T. A., & Taiwo, A. S. (2013). An empirical evidence on impact of credit management and Liquidity position on profitability of Nigerian banking sector. Management and Administrative Sciences Review, 2(2), 233-242
Nwanna, I. O., & Oguezue, F. C. (2017). Effect of credit management on profitability of deposit money banks in Nigeria. IIARD International Journal of Banking and Finance Research, 3(2), 137 – 160.
Ofoegbu, G. N., Duru, N., & Onodugo, V. (2016). Liquidity Management and Profit Performance of Pharmaceutical. International Journal of Management Sciences and Business Research, 5(7), 1-13.
Okpala, K. E. (2017). Strategic Budgetary System and Infrastructure Development of the Power sector in Nigeria, 1981-2015. (Unpublished Ph.D. thesis, Department of Business Administration and Marketing of Babcock Business School.
Okpala, K. E., Osanebi, C., & Irinyemi, A. (2019). The impact of credit management strategies on liquidity and profitability. Journal of Behavioural Studies, 1(1), 1-14.
Olabisi, J., Oladejo, D. A., Adegoke, J. F., & Abioro, M. A. (2019). Credit Management Policy and Firms’profitability: Evidence from Infant Manufacturing Firms in Southwest, Nigeria. Contemporary Economy Journal, 4(4), 59-69.
Olarewaju, O. O., & Akinleye, G. T. (2018). Credit Management and Profitability Growth as a Measure of Manufacturing Firm's Growth in Nigeria. Acta Universitatis Danubius. Œconomica, 15(2), 445-456
Onuora, J. K., Nwafili, I. S. (2017). The Effects of Credit Management on Profitability of manufacturing firm in Nigeria. (A Study of Selected Companies in Nigerian Stock Exchange). Research Journal of Finance and Accounting, 8(10), 142 -154
Owolabi, S. A., & Obida, S. S. (2012). Liquidity management and corporate profitability: Case study of selected manufacturing companies listed on the Nigerian Stock Exchange. Business Management Dynamics, 2(2), 10 – 25.
Oyadonghan, K. J., & Bingilar, P. F. (2014). The impact of effective credit policy on liquidity of manufacturing companies in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(7), 88-100.
Raymond, A. E., & Adigwe, P. K. (2015). The credit management on liquidity and profitability positions of a manufacturing company in Nigeria. European Journal of Research and Reflection in Management Sciences, 3(3), 32-48.
Sabenhang, H. K. (2015). Credit Management and Its Impact on Profitability of Joint Venture Banks in Nepal (Doctoral dissertation, Faculty of Management Tribhuvan University).
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative Analysis, 9(4), 643 - 657.
Singh, S., & Sharma, D. K. (2018). Impact of credit risk on profitability: A study of Indian public sector banks. International Journal of Research in Economics and Social Sciences (IJRESS), 8(2), 492-498.
Taiwo, J. N., Ucheaga, E. G., Achugamonu, B. U., Adetiloye, K., & Okoye, O. (2017). Credit risk management: Implications on bank performance and lending growth. Saudi Journal of Business and Management Studies, 2(5B), 584-590.
Tuladhar, R. (2017). Impact of credit risk management on profitability of Nepalese commercial banks (Doctoral dissertation, Western Sydney University (Australia).
Uwalomwa, U., Uwuigbe, O. R. & Oyewo, B. (2015). Credit management and bank performance of listed banks in Nigeria. Journal of Economics and Sustainable Development, 6(2), 27-32.
Uwuigbe, U., Uwuigbe, O. R., & Oyewo, B. (2015). Credit management and bank performance of listed banks in Nigeria. Journal of Economics and Sustainable Development, 6(2), 27-32.
Uzoh, C. A. (2012). The impact of credit management on the profitability of a manufacturing firm: A Case study of Unilever Plc Aba, Nigeria. (Unpublished M.Sc. Thesis, Department of Accounting, University of Nigeria, Enugu, Nigeria.
Wireko, D., & Forson, A. (2017). Credit Risk Management and Profitability of Selected Rural Banks in Upper East Region. Journal of Excellence, Leadership, & Stewardship, 6(2), 43-55.
Zamira, V. (2016). The impact of credit risk management on the banking profitability: a Survey of the theoretical and empirical literature. European journal of economics and management sciences, (2), 48-51.
Published
2021-12-14
How to Cite
Alhassan, I., & Islam, K. M. A. (2021). CREDIT MANAGEMENT STRATEGIES AND FINANCIAL PERFORMANCE OF INDUSTRIAL GOODS SECTOR IN NIGERIA. Indian Journal of Finance and Banking, 8(1), 59-74. https://doi.org/10.46281/ijfb.v8i1.1495
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2021 Ismail Alhassan, K. M. Anwarul Islam
This work is licensed under a Creative Commons Attribution 4.0 International License.
