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Many companies are forced into untimely liquidation as a result of liquidity not
necessary because they are not profitable but due to inappropriate policies in
respect of cash and credit management which constitute the basic liquid funds of
such organization.
This study is therefore aimed at investigating how proper management policies in
the area of cash and account receivables can improve liquidity and ultimate
To carry out the study, data for research were collected through appropriate
constructed questionnaire which were administered to (73) respondents of staff of
united Bank for Africa plc Enugu and staff of Nigerian Breweries plc Enugu
supplemented by personal interviews.
Data collected were analyzed using percentage method of analysis and subsequent
test using the chi- square method to the rejection of null hypothesis in chapter



Title page—————————————————————– i
Approval page———————————————————– ii
Dedication—————————————————————- iii
Acknowledgement——————————————————- iv
Abstract——————————————————————- v
Table of contents——————————————————— vii
List of tables————————————————————— ix
1.1 Background of the study——————————————— 1
1.2 Statement of the problem——————————————– 3
1.3 Objective of the study———————————————— 3
1.4 Research questions—————————————————- 4
1.5 Hypothesis————————————————————- 4
1.6 Significance of the study——————————————— 5
1.7 Scope and limitation of the study———————————– 5
1.8 Definition of terms—————————————————- 6
References————————————————————– 7
2.1 Concepts of liquidity and its effect on business operation—– 9
2.2 Issues in cash management—————————————— 15
2.3 cash planning and control——————————————– 17
2.4 Determination of Excess liquidity/ weak liquidity————— 22
2.5 Techniques of cash control——————————————- 28
2.6 Management of Receivables (debtors)—————————– 31
2.7 The use of accounting ratios in management of cash and
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Account Receivables————————————————- 40
References————————————————————- 44
3.1 Research Design——————————————————- 45
3.2 Sources of Data——————————————————– 45
3.3 Population of study—————————————————- 46
3.4 The sample size——————————————————– 46
3.5 Method of investigation———————————————- 47
3.6 Validity and reliability of instrument——————————- 48
4.1 Data presentation—————————————————– 50
4.2 Data Analysis——————————————————— 51
4.3 Test of hypothesis—————————————————- 58
References————————————————————– 63
5.1 Summary of findings————————————————- 64
5.2 Conclusions————————————————————- 65
5.3 Recommendations—————————————————– 65
5.4 Recommendation for further studies——————————- 66
Bibliography———————————————————— 67
Appendix—————————————————————– 69
Questionnaire———————————————————— 70
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Table 2.1 cash flow statement of UBA plc Enugu and Nigerian
Breweries plc Enugu ———————————- 23-27
Table 4.1.1 Questionnaire Administration————————- 50
Table 4.2.1 Company’s product————————————- 51
Table 4.2.2 strategic of cash and credit policies—————— 51-52
Table 4, 2.3 credit control unit————————————– 52
Table 4.2.4 effectiveness of credit control———————— 53
Table 4.2.5 percentage of working capital———————— 53-54
Table 4.2.6 management of cash resources and
Account Receivables———————————— 54
Table 4.2.7 Discount to customers———————————- 55
Table 4.2.8 Technique of cash flow projection——————– 55-56
Table 4.2.9 Determining the level of profitability—————- 56
Table 4.2.10 significant of cash planning and budgeting system- 57
Table 4.3.1 The expected frequency table 1———————— 59
Table 4.3.2 The expected frequency table 2———————— 60
Table 4.3.3 The expected frequency table 3———————— 62
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The managements of an organization capital relate to the finance and
investment of non- human resources, that is physical and monetary assets for
the purpose of maximum benefit in terms of profitability.
According to fear (1980) profitability is determine in part by the way in which a
company manages its working capital elements especially the company’s
management policies in respect of cash and account receivable or payable.
Basically, there would be a drop in profit if the basic elements of working
capital were raised without a corresponding rise in production or margins. So
one of the principle functions of a financial manager is to provide a correct
(optimum) amount of each element of working capital at the right time and in
the appropriate place to realize the greatest return on investment. A business
which is basically profitable in a capital intensive industry with high level of
inventory turnover but does have an effective or efficient policy for its working
capital constituents, especially cash can easily be stopped by a temporary setback
into liquidation because it has no room to maneuver.
Traditionally, the users of accounting information, especially the external
users are interested in notions of solvency and liquidity as criteria for assessing
credit worthiness.
In recent years, cash and trade credit management has become the most
important sector of financial management in many trading and manufacturing
organization. At one time, it was possible for a business to survive without
proper cash management policies as well as lay down policies for accounts
receivables (trade debtors) as long as it was reasonably profitable.
According to Bennel (1989),prior to 1970’s, trade credit was not a dominant
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feature of conducting business and procurement of fund, were largely easily
obtained and cash flow projections or forecasting were not exploited to its
fullest use.
Today, however, this has not generally been the case and many highly
profitable companies have had liquidity problems and some have gone into
liquidations largely because of lack of appropriate cash and credit management
policies or technique. In these circumstances business executives now attach a
high degree of importance to the cash and accounts receivables management
function. In large organizations, the financial director or treasurer is usually in
charge of the management of cash resources and in introducing appropriate
systems that will ensure adequate working capital flow that enable the company
to remain liquid at all times.
Illiquidity problems could be found in all types of companies and not
restricted to small inefficient firms. In some case, large well known companies
have experienced illiquidity problems and in some few constant, liquidation
proceedings and eventual demise of such organizations. The current wave of
distress in our financial sector (Bank and insurance companies) provides a good
back up to illiquidity problems arising from in efficiencies in cash and credit
management policies in spite of their profitability. Today, several of these
institutions have been liquidated.
These developments have naturally had an effect on credit and cash
management policies and it is therefore considered to be particularly important
that the reasons liquidity problems should be appreciated, using united Bank for
Africa plc Enugu and Nigerian Breweries plc Enugu as study of some selected
companies. The choice of these organizations is the relevant which cash and
credit management policies bear to its operations.
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Many profitable organization are forced into untimely liquidation ,bankrupt and
experience work stoppages as a result of strike action and consequently operate at
looses not because the business is not profitable but due to inefficient utilization of
cash and other material resources at its disposal.
Moreover majority of business transaction are conducted on credit basis and this
has always increased the volume of account receivable (debtors) and a substantial
amount of these receivable are lost daily through bad and doubtful debts.
The resultant effect is that companies have huge amount of its fund tied to
uncollectable, hence a state of illiquidity can arise. Therefore, the continued
existence of a firm or company, its survival and growth depends among other
factors on how best the firm utilizes it’s available cash resources and the efficient
management of its collectables, as the neglect of these high important core of
management area could soon lead to a sale of insolvency due to illiquidity
This study is therefore designed to evaluate the essence of efficient cash and credit
management policies existing in united Bank for Africa plc Enugu and Nigerian
Breweries plc Enugu.
Realizing the high rate of failed or distressed organization in the financial sector
and the manufacturing sectors of the economy due to illiquidity problems and the
factors responsible for such distressed conditions had not been properly addressed,
the specific objective of the study are to find out:
(i) The percentage of cash and collectibles to the firm’s total working capital.
(ii)The extent to which improper management of cash resources and accounts
receivables can create illiquidity or insolvency in a business outfit.
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(iii) To evaluate the extent to which an organization require regularity in its
liquidity management through the techniques of cash flow budgeting.
(iv) To assess the adequacy of cash and credit management policies of companies.
The following research questions have been designed to address the detailed areas
of the study and will serve as a guide to the research on the issue of the study.
(i) What is the percentage of cash and collectibles to the firm’s total working
(ii) To what extent will improper management of cash resources and accounts
receivable create illiquidity or insolvency in a business outfit?
(iii) What techniques of cash flow budgeting does an organization require regularly
in its liquidity management.
(iv) How can the adequacy of cash and credit management policies of companies or
organizations be assessed.
According to Spiegel (1972)”A research hypothesis is an assumption statement or
suggestion about the population under consideration.”
Omoloaije (1986) defined hypothesis as a suggested answer to the problem of the
research under investigation.
Consequently, the following hypothesis will be used in this study:
HO: A high percentage of cash and collectibles does not increase firm’s total
working capital.
H1: A high percentage of cash and collectibles increases the firm’s total working
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HO: Improper management of cash resources and accounts receivables does not
create illiquidity or insolvency in a business outfit.
H1: Improper management of cash resources and accounts receivable create
illiquidity or insolvency In a business outfit.
HO: A well instituted techniques of cash flow budgeting regularly does not yield
liquidity turnover.
H1: A well instituted techniques of cash flow budgeting regularly in organization
yields liquidity turnover.
The research project will be of great importance to the company’s management
and other co-operate bodies as well as the general public such as investors.
The way which this study have been planned and carried out, will offer enough
information and explanation to all those engage in the management of an
organization either as a financial manager or financial controllers.Furthermore,this
study is expected to offer a secondary source of data to many student or
researchers in the area of working capital management.
Osuata (1987) defined scope of study as these part of topic or problem that
normally might be considerable part of such but which because of limitation of
time, physical capacity or other reasons, the researcher cannot or does not wish to
include it, thus the researcher had to restrict himself to a particular area of
concentration and specific period of time.
The scope of this study is limited to cash and credit management policies for
improved liquidity to the united Bank for Africa plc Enugu and Nigerian Breweries
plc Enugu.
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The research will only rely on the design of effective cash and credit policies
through cash budgeting techniques and efficient collection procedures for bailing
out companies in the web of illiquidity liquidation.
It is also necessary to state that the scope of the study is limited to Enugu
environment due to time, financial and other constraints. The time coverage for the
study is from 2009 to 2010 year.
(1) CASH: Money in coins or notes. Give or obtain notes or coins for a cheque.
(ii) CREDIT: a system of allowing payment for purchases to be deferred.
(iii) MANAGEMENT: The act of managing.
(iv) POLICIES: A course of action adopted or proposed.
(v) INSTRUMENTS: A tool or implement for precise work.
(vi) LIQUIDITY: The availability of liquid assets to a market or company.
(vii) SOLVENCY: State of being able to pay current debts obligation as when
(viii) EVALUATION: To assess the amount or value of
(ix) ACCOUNT RECEIVABLE: This refers to debtors.
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Benneth, R (1989) Small Business survival .London: pitman Publishing ltd
Frear, O.H (1987) The Management Of Business Finance, London: pitman
publishing ltd
Omololaiye, (1986) Research Method and statistics, Jos: Fab Anich Nigeria ltd
Osuata, E. C (1987) Introduction To Research Methodology. Onitsha: Feb
publisher’s ltd
Spiegel, M (1972) Statistical S .L Metric, 3rd Edition London: Mc Graw Hill