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.