Abstract
The study examines the effect of credit policy management on financial performance of listed consumer goods companies in Nigeria. The study adopted the ex post facto research design and used content analysis of corporate financial statements to extract relevant data from sampled firms for the period 2016 to 2019. The population of the study consisted of all listed consumer goods companies in Nigeria. Findings of the study indicate that cash conversion cycle has a negative but not significant association with financial performance. The study further revealed that average collection period has a positive and significant association with financial performance while debt equity ratio has a positive but insignificant relationship with financial performance. The study concludes that good credit management policy enhance financial performance of listed consumer goods companies in Nigeria and recommends that companies particularly the consumer goods companies should establish credit management policies that clearly outline the management’s view of organization priorities on profitability. KEYWORDS : Credit Management, Cash Conversion Cycle, Average Collection Period, Debt Ratio, Financial Performance DOI: 10.7176/RJFA/11-10-17 Publication date: May 31 st 2020
Highlights
Credit management is an essential and crucial element in planning, control, decision making and evaluation of business performance
From the results using principal components analysis and multiple regression technique, credit management captured by cash conversion cycle, average collection period and control variables current liabilities, net working capital, turnover ratio and fixed financial ratio were statistically significant in determining the corporate performance of manufacturing firms measured by return on equity
The study examines the effect of credit policy management on financial performance of listed consumer goods companies in Nigeria
Summary
Credit management is an essential and crucial element in planning, control, decision making and evaluation of business performance. From the results using principal components analysis and multiple regression technique, credit management captured by cash conversion cycle, average collection period and control variables current liabilities, net working capital, turnover ratio and fixed financial ratio were statistically significant in determining the corporate performance of manufacturing firms measured by return on equity. The intent of the study was to determine whether credit management mechanism: credit policy, liquidity management and debtors’ turnover have effect on profitability of manufacturing firm measured by return on assets (ROA). The result obtained indicated that the credit management strategies sub-variables - credit risk assessment, debt recovery strategy, receivable collection policy, have positive and statistically significant impact on the liquidity sub-variable - Ability to pay, level of bad debt, and cash inflow It was empirically established that there exists a significant relationship between liquidity risk management and the financial performance of consumer goods companies .Findings further reveal that companies’ non-concerned attitude to liquidity risk management affects the financial performance of consumer goods companies significantly
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