The Impact of Effective Management of Credit Sales on Profitability and Liquidity of Food and Beverage Industries in Nigeria

Abstract

The study examined the impact of effective management of credit sales on profitability and liquidity of Food and Beverage Industries in Nigeria. The study centered mainly on the effect of each of the individual components of credit sales, profitability, liquidity and activity level of the companies under study which include the credit sales percentage, gross profit margin, net profit margin, return on capital employed, debtors collection period, debtors turnover, acid test ratio and return on current assets. Also the credit policy variables were examined which include credit standards, credit terms and collection policy and procedures. Data were obtained from the Annual reports and Accounts of the selected companies of year (2007-2011). The relevant data were subjected to statistical analysis. Analysis of variance (ANOVA) was used in testing the hypotheses. The study revealed that when credit sales are effectively managed profitability is at a desirable level. Lastly, the finding revealed that when a firm's debtors turnover is favourable, liquidity is at a desirable level. The researchers recommended that companies should consider their mission, the nature of their businesses and their business environment before setting up a credit policy.