Trade credit management and SMEs sustainability: a study of selected SMEs in Lagos, Nigeria

Many businesses, especially SMEs are being made to offer credit facilities to customers in a bid to encourage patronage. The mismanagement of this trade credit however can lead to a devastating plunge in the financial performance of the business. This study explores the relationship between trade credit management and financial performance of small and medium enterprises in Lagos state Nigeria, using the descriptive research design. The research adopted a mixed-method approach using a structured questionnaire and a semi-structured interview as instruments for data collection. A total number of 285 copies of the questionnaire were distributed to business owners engaged in sales and services in Alimosho and Ifako Ijaiye LGA in Lagos State, Nigeria, while a semi-structured interview was conducted on fifteen (15) business owners in the selected locations to augment data collected via the quantitative method. Data analysis was carried out using linear and multiple regression while the qualitative data were analyzed and interpreted using the thematic analysis. The results from the test of hypotheses showed that cash discount, extensive credit checking, and credit policy significantly impact financial performance. Results from the thematic analysis validated the findings from the test of hypotheses. The findings of the qualitative analysis revealed that the effective management of trade credit will improve the financial performance of SMEs. Premised on these findings, this research recommended that techniques like cash discount, extensive credit checking, and credit policy be used to drive an increasing return on investment for small businesses.