Credit management is very important to any business in Nigeria; the principles of credit management are not all applicable to business under the service sector but also those in the manufacturing sector in Nigeria. But the term credit management is mostly heard in the banking sector or any other financial institution or any business or organizations that are giving out loans to their staff or customers.

What Is Credit Management?

Credit management is the process of granting credit, setting the terms it's granted on, recovering this credit when it's due, and ensuring compliance with company credit policy, among other credit related functions.
How does poor credit management affect businesses in Nigeria?
Every layman knows that poor credit management is not healthy for all businesses in Nigeria. However most of them do not really know the implication of poor credit management to business. No matter how much funding a business has; poor credit management can cause the following problems:

Rejection Of Loan Application

Loan rejection is not good news to those seeking financial assistance from any financial organization or institution in Nigeria. Loan rejection comes as a result of most financial institutions inability to recover all the loans given out to individuals and other organization seeking loans.
Inability To Acquire Inventory
Poor credit management has effect on financial institutions ability to acquire inventory. The return on assets (ROA), return on equity (ROE) will be greatly affected as a result of poor credit management.

Liquidation of the business

Liquidity is very common in Nigeria among businesses today; every organization fight to make sure they remain strong in their business ventures for years and to ensure growth and development in terms of profitability. We all know that profitability level of any business venture is seen from their return on asset (ROA) and return on equity (ROE). Organisations that fails in the areas of improving their return on asset (ROA) and return on equity (ROE) end up going bankrupt which thereby leads to liquidation.

Liquidation is the process in accounting by which a company is brought to an end in the United Kingdom, Nigeria, Australia, New Zealand, Republic of Ireland, Cyprus, United States and Italy. The assets and property of the company are redistributed.
Liquidation is something that no business owner should take likely. The growth of any business is dependent on the profitability level and the management of credits. If any business is able to control these two occurrences; they stand a chance to compete in today business world.

Conclusion

In conclusion, poor credit management is affecting business in Nigeria especially the finance providers. We have found out that there are basically three major resultants of poor credit management which are Loan rejection, poor inventory management and liquidity.

Source: Undergraduate project topics
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