Optimizing methodology for cost of credit to enhance the bottom-line profit in construction projects in Sri Lanka

Abstract

Cost of credit is one of the main cost components directly and indirectly affect the bottom-line profit of any organization. Identification of components of cost of credits and different financing alternatives can be used for financial decision making to increase the profits. There are alternatives to financing used in practice for inflow such as short term and long-term loans for higher capital requirements, line of credits with different rates and terms such as credit card and outflow control by credit suppliers and services. Though there have studies done to access the impact for the long term, short term, and line of credit cost of credit, the cost of credit of credit purchases have not been included. Therefore, this study has proposed a model on maximizing of construction projects profits through analyzing components of cost of credits of credit purchases. Components of the cost of credit for credit purchases have been considered to several categories such as theoretical variable, market factors and human factors and for this study only the theoretical variable and parameter have been used. The model proposed has delivered the sensitivity analysis of each identified parameters of cost of in a tabular format. The analysis shows that the cost of credit reduces along the credit period which implied that when the payment prior to the date with a discount put upon can be a profit generate. And along the increased discounting rates there can be seen an increase the amount saving from the transaction. Finally, the discount or otherwise the increase in credit purchase value have increased the saving for the company which is much likely to combined with other factors. Therefore, careful management has to be done by the company to control the increase in the credit purchase value. This study has shown that by optimizing the cost of credit management the bottom-line profits can be maximized