This study examines the impact of effective credit policy on liquidity of manufacturing companies in Nigeria. Credit policy from this perspective was viewed from the angle of controlling or regulating credit sales. The study looked into the problems of non-monitoring and the non-review of the credit policy of organizations as a cause of the liquidity problems associated with credit sales. The study centered mainly on the effects of each of the individual components of credit period, the cash discount and the collection period on an organization’s liquidity. Also to ascertained the type of effects that a company’s credit policy has on its liquidity. The study involved a survey of four manufacturing companies which include Unilever Nigeria PLC, Cadbury Nigeria PLC, Nestle Nigeria PLC and Nigerian Bottling Company PLC. The Annual Reports and Accounts of year 2007-2011 of the selected companies as well as a questionnaire were subjected to statistical analysis. Analysis of variance (ANOVA) and regression analysis were used in the hypothesis testing. The study revealed that when a company’s credit policy is favourable, liquidity is at a desirable level. And also, that manufacturing companies do not monitor and review their credit policy regularly and as a result the allowance of cash discounts could not be minimized as much as expected. We therefore recommended that companies should consider their mission, the nature of business and business environment before setting up a credit policy.
Keywords: Credit Policy, Impact, Liquidity, Manufacturing
