The management of accounts receivables and the survival of small medium and micro enterprises in the Cape metropole

Abstract

This study emanated from observations that small business failure rate has remained high over the years, yet they are a key to economic development and to addressing the high rate of unemployment in South Africa. The aim of the study was to: (1) determine the accounts receivables practices employed by the SMMEs, (2) determine factors that inhibit SMMEs from using effective accounts management practices, (3) ascertain if SMMEs have credit management system in place to enable them to establish the creditworthiness of their custmers and (4) determine whether there are systems in place to track payments or fulfilment of credit agreements. A pragmatic approach was adopted as a suitable methodology to address the set research objectives. Specifically, a mixed research design, based on the use of a questionnaire with both open-ended and close-ended questions, was adopted for the study. SMMEs in malls within the Cape Metropole area constituted the population for the study and were selected based on the definition of a small business provided in the Small Business Act of 1996. The respondents were production managers and/or financial managers and/or supply chain managers and/or general managers of SMMEs. They were chosen because they were directly involved in making decisions pertaining to inventory and trade receivables in their respective SMME(s). Five shopping malls in the Cape Metropole area were identified as the sampling frame for the study. This study found that SMMEs use poor methods of managing their accounts receivables characterised by traditional approaches. The SMMES mainly relied significantly on sending reminder statements when debtors delay payment. Credit records were also found to be poorly managed. However, more needs to be done as very few SMMEs have adopted computer-assisted accounts receivables management techniques. The findings suggest a need for training and support for SMMEs to understand the management of accounts receivables and, most significantly, check the credit records of their customers before selling to them. Most (76%) of the businesses did not conduct credit checks on customers, neither did they check their previous payment pattern, and 67% did not use computers to manage accounts payable among other creditworthiness assessments that were not practised by the businesses. It was also found that more than 30% of the businesses lacked adequate cash skills, had inadequate cash resources and inadequate accounts receivables management knowledge, which inhibited proper management of accounts receivables. As a result, financial training among SMMEs and computerisation of management practices of SMMEsis recommended.