Key Points
- NICA says trade credit provides more than 60 per cent of working capital financing in Nigeria’s real sector.
- Manufacturers are urged to strengthen distributor screening, credit limits and receivables monitoring.
- Institute recommends credit reporting and factoring to improve liquidity and reduce risks.
Main Story
The National Institute of Credit Administration (NICA) has called on manufacturers to strengthen their management of trade credit, warning that poorly controlled distributor lending could expose businesses to bad debts and cash-flow pressures.
In a statement signed by its Registrar/Chief Executive Officer, Mr Chris Onalo, on Tuesday, the institute said trade credit accounts for more than 60 per cent of working capital financing in Nigeria’s real sector.
NICA said credit extended to distributors could help manufacturers increase sales, expand their market presence and keep production running. However, it said the benefits could be undermined when manufacturers fail to properly assess and monitor the credit extended to customers.
The institute urged manufacturers to treat trade credit as a commercial tool for driving sales, rather than simply as a concession to distributors.
It said properly designed credit policies could allow distributors to carry larger stocks and sell products more quickly while giving manufacturers greater control over repayment.
NICA recommended that manufacturers carry out proper due diligence before extending credit, establish appropriate credit limits, document the terms of each transaction and regularly monitor outstanding receivables.
It also encouraged companies to employ trained credit management professionals, including NICA-certified practitioners where possible, to improve the quality and integrity of credit decisions.
According to the institute, credit policies should be designed to support sales while controlling the risks associated with delayed or failed payments.
NICA also urged manufacturers to share information on distributor credit histories with licensed credit bureaus and relevant business information agencies.
It said better access to credit information would allow manufacturers to identify risky payment patterns, while distributors with strong repayment records could benefit from improved access to financing.
The institute further recommended credit factoring as an option for manufacturers seeking to improve cash flow.
Under factoring, verified receivables can be sold to a factor in exchange for immediate funds rather than waiting for distributors to settle invoices after 30, 60 or 90 days.
NICA said manufacturers could use the resulting liquidity to purchase raw materials, pay workers and maintain production without waiting for outstanding distributor payments.
The institute called on the organised private sector, particularly the Manufacturers Association of Nigeria (MAN), to promote responsible use of trade credit across the manufacturing sector.
It also said manufacturers could use its NICA CreditAcademy to train their teams and establish more effective credit management systems.
The Issues
Trade credit is an important source of financing for Nigeria’s real sector, but it also creates exposure when distributors fail to pay on time or default.
For manufacturers, the challenge is to expand sales without allowing outstanding receivables to weaken working capital. Effective screening, credit limits, documentation and continuous monitoring can help businesses manage that balance.
Credit information sharing could also reduce information gaps between manufacturers and distributors, while factoring provides an option for converting verified receivables into cash before their normal payment dates.
What’s Being Said
“Trade credit accounted for more than 60 per cent of working capital financing in Nigeria’s real sector, making its effective management critical to industrial growth.” — National Institute of Credit Administration.
“Credit as a strategic sales accelerator rather than a concession.” — National Institute of Credit Administration.
What’s Next
NICA is calling on manufacturers and organised private-sector groups to strengthen internal credit systems and adopt more structured approaches to distributor financing.
Manufacturers are also being encouraged to train credit teams, share distributor payment information with authorised agencies and consider factoring where it can improve liquidity.
Bottom Line
NICA says manufacturers can use trade credit to drive sales and sustain production, but only if the associated risks are properly managed. The institute wants companies to combine stronger credit controls with information sharing and financing tools such as factoring to protect cash flow.
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