BACKGROUND OF THE STUDY
The main aim of setting of any business organization is to maximize profit. This can be achieved through an efficient management of it human and material resources so as to bring about increased output.
In order to attain this noble objective of profit maximization business organization need to have some degree of effectiveness in their credit management. This is necessary because it is the only way that the business owner can be able to remain buoyant financially so that pressing obligation of the organization will be met.
Credit management was encouraged by this rising increase in the size of business. The industrial revolution in Europe in the early nineteenth century brought about technological advancement in most business organizations.
The result was an increased production of goods and service. These are then the need for entrepreneurs to obtain from financial institution so as to be meet up with various costs that usually occur in the production process. It then becomes necessary for such financial institution to issue credit since most business was unable to produce the whole bulk of the goods on cash basis.
Business organization must set standard to facilitate the recovery of its cash on time these set down rules and regulation has a profound effect on both parties, i.e financial institutions and the customers, this is the constitute effectiveness of credit management in such financial institution.
The word credit is derived from the Latin word credo which means to believe or brush credit period allowed for payment of goods and services already delivered to the customers.
Faith is an important pre-requisite in the management of credit because if you trust somebody that means you already have faith in that particular person. So faith serves as a motivating factor in the process of granting credit to a customer, this can only change at the process of granting credit to a customer, this can only change if the customer should abuse the confidence reposed on him along the line. Therefore there is usually element of risk when carrying out credit transaction since there is usually the uncertainty of payment.
