An Analytical Study Of Credit Policies And Profitability

Abstract

Credit policy is one of the most significant financial management tools influencing organizational profitability and sustainability. Effective credit policies help firms manage receivables, reduce default risk, improve liquidity, and enhance profitability. This paper analytically examines the relationship between credit policies and profitability in banking and corporate sectors. The study focuses on various components of credit policy such as credit appraisal, credit standards, collection policies, trade credit management, and risk assessment mechanisms. The research also evaluates the impact of credit risk management on profitability indicators such as Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM). The study is based on secondary data obtained from research papers, banking reports, and financial journals. Findings indicate that strong credit policies positively influence profitability by minimizing non-performing assets, improving cash flow efficiency, and strengthening financial performance.