ANALYSIS DEBT MANAGEMENT TECHNIQUES IN BUSINESS ORGANISATIONS IN NIGERIA
1.1 BACKGROUND OF THE STUDY
In contemporary business setting, debt is seemingly inevitable. Sometimes it emanates from short fund convenience with the prevailing trade terms. Debt does not occur only when money is borrowed. It equally occurs when there is exchange of goods or services with a deserved payment. So each time goods or services are exchanged with a deferent of its financial obligation, there is incidence of debt.
A good business may not always write to finances the commencement of his business from his personal savings. If he does, so many things may happen. Either that the business is under financed or the business is foregone, likewise a business firm for one version or the other may not finance through equity aware only. The management may wish to source the fund through debt. Even after the commencement, the firm may further need extra funds for expansion or for speculative purposes. Hence, this project work looks into the analysis of debt in a dual perspective:
i. In the accumulative of fund, either for the commencement or expansion and
ii. In trading relationship (trade debt).
(i) At the commencement of a consciences organization, the owners try to maintain a favourable capital structure. Ordinarily, it is normal for the business owners (equity holder) to finance the business. But more often, the funding of a business goes beyond that. The choice of the capital structure and the funding technique is left at the mercy of the financial managers. On doing so however, he doesn’t overlook or neglect the major organizational objective; maximization of the owners wealth.
Business organizations usually strive to achieve a number of objectives. These corporate objectives provide a set of criteria upon which financial decisions can be based. In general terms of business organization seek to achieve by obtaining funds from various sources and investing some reasonably. It is important to recognize that the various types of funds raised has its own cost and each has certain risks. For example, loans (secured and unsecured), debentures, preference and ordinary shares. Loans raised ob the security organizations assets tend to have fairly low rates of interest although they imply certain risks. Failure to meet the terms of the loan on the due date would empower the tender to confiscate the said assets with potentially catastrophic consequence for the borrower.