Thesis Abstract

Abstract
Bad debts are a significant challenge for Small and Medium Enterprises (SMEs) globally, affecting their financial stability and growth prospects. This study explores the provision for bad debts as a strategic tool for enhancing business growth in SMEs. The research aims to investigate the impact of effective bad debt management on the financial performance and sustainability of SMEs. The methodology involves a mixed-methods approach, combining quantitative analysis of financial data and qualitative insights from interviews with SME owners and financial managers. The study focuses on a sample of SMEs across various industries, analyzing their bad debt provisioning practices and the associated outcomes on business growth. Results indicate that SMEs that implement proactive strategies for managing bad debts, such as early identification of potential delinquent accounts, establishing clear credit policies, and regular monitoring of receivables, experience improved financial performance compared to those with reactive debt management practices. Effective provision for bad debts is found to enhance cash flow management, reduce financial risks, and improve overall business profitability. Furthermore, the study highlights the importance of integrating technology solutions for credit risk assessment and debt collection processes in SMEs. Automation tools for credit scoring, debtor tracking, and invoice management are shown to streamline operations and minimize bad debt exposure. The findings suggest that a comprehensive approach to bad debt provisioning, encompassing both financial policies and technological innovations, is essential for SMEs to mitigate credit risks and sustain long-term growth. The study underscores the need for SMEs to prioritize bad debt management as a strategic function within their financial operations, aligning it with broader business objectives. In conclusion, the research emphasizes the crucial role of provision for bad debts in fostering business growth and competitiveness among SMEs. By implementing effective strategies for managing credit risks and optimizing debt recovery processes, SMEs can enhance their financial health, strengthen stakeholder confidence, and capitalize on growth opportunities in dynamic market environments. The study contributes to the existing literature on SME finance and offers practical insights for entrepreneurs and policymakers seeking to support the sustainable development of small businesses through improved debt management practices.

Thesis Overview

INTRODUCTION

1.1 Background of the study

According to Wikipedia, a bad debt is an amount recorded by the enterprise as a loss to the enterprise and recognized as an expense, since the bad debt due to the enterprise can not be obtained and all the efforts required to recover the debt are unrecoverable. exhausted. probably remains uncollectible and is written off. Bad debts appear as an expense in the company's income statement, which reduces net income.

In general, companies estimate the bad debts that could be incurred in the current period based on past earnings estimation processes, and most companies account for them because not all their accounts receivable will likely do so. . United States federal law defines "debt" as an obligation for the consumer to pay money resulting from a transaction in which money, goods, insurance or services have changed hands. The Cambridge International Dictionary defines a "guilt" as an extra amount of money someone owes.

How long does it take for debtors (borrowing clients) to pay their debts? Understanding the payment behavior of potential customers is essential for evaluating credit management in any organization, as insufficient credit controls can lead to significant financial planning issues (Atradius 2012).

According to Atradius (2011), late payments and payment defaults are still of great importance worldwide. The study also revealed that 305 of the debts are paid too late, while 3% go wrong, the main reason being that the buyers do not have sufficient funds to pay.

Credit problems are usually identified at the end of the credit channel (Katoh 2004). Before a loan becomes bad, it must be granted. In addition, the poor quality of a loan is sometimes due to factors other than the credit process, such as negative selection and moral hazard (Satiglitz and Weiss, 1981), or any external shock that may change the nature of the loan. borrower's ability to borrow. repay (Minsky 1985).

According to Gitman (1992), several aspects suggest sound management of bad debt. These include credit standards, credit terms and collection procedures.

1.2 Problem statement

The issue of borrowers has become a subject of concern in the global financial circuit. Financial experts are still exploring different ways to solve this problem. Over the years, we have been discussing the method that worked best. Experts agree that no method stands out, the choice is independent of other factors such as economic stability and the effectiveness and reliability of the national database. The SME has also developed various ways to remedy this anomaly. Credit facilities are therefore the main commercial asset and the main source of revenue for most SMEs. However, some loans, especially purchases, are bad and have a negative impact on the profitability and overall performance of the institutions. In Nigeria, most medium-sized companies face the challenge of canceling bad debts, which requires effective default management strategies.

1.3 purpose of the study

The broad objective of the study is to examine how the Provision for Bad Debts is a useful strategy for Enhancing Business Growth in SMEs Specific objectives are;

1. To identify the causes of bad debt.

2. To assess the impact of bad debt on the performance of SME.

3. To recommend suitable strategies on how to minimize the debt in SME.

1. 4 Significance of the study

The study aims to help the SME take a comprehensive approach to bad debt. The study will also be of interest to public universities, higher education institutions, research institutes and individual researchers interested in SME growth and development and will use the results for further research. This study will encourage researchers to identify the effectiveness and efficiency of the SME. The research will help individual public companies understand their position relative to the standard of their bad debt.

1.5 study hypothesis

HO1: Provision for Bad Debts is a not a significant strategy for Enhancing Business Growth

1.6 Scope and Limitations of the Study

The study scope is limited to investigating the Provision for Bad Debts is a useful strategy for Enhancing Business Growth in SMEs in Lagos state. Limitation faced by the research was limited time and financial constraint

1.7 Definition of Basic terminologies

Bad Debt

A bad debt can be understood as a loan which the creditor finds difficult or impossible to recover.

Bad Debt Estimation

The methods used in estimating doubtful accounts also differ depending on the nature of the company or business.