Abstract

The purpose of this article is to investigate the accounts payable management practices of small, medium and micro enterprises (SMMEs) in the Cape Metropolis. The study is motivated by a lack of research on payable management practices of SMMEs in South Africa. Data are collected from a sample of 200 SMMEs by means of a closed-ended questionnaire and analyzed using descriptive statistics and inferential statistics. The findings of the study indicate that 70% of the sampled SMMEs purchase only on cash basis. Of the sampled SMMEs, 22% purchase on both cash and credit, while 8% purchase only on credit basis. Of those that purchase on credit, 72% pay their creditors promptly to take advantage of discount facilities. To manage their accounts payable, 52% of the SMMEs use computers. Only 43% settled accounts payable on the last day that the payment is due. The results further indicate that a lack of personnel and time are the main factors that inhibit the SMMEs from managing their accounts payable effectively. The above results suggest that SMMEs are inclined towards purchasing on cash or paying promptly when they purchase on credit, which could indicate that they had a lower bargaining power relative to that of suppliers who may have viewed these entities as risky ventures to which they were reluctant to extend credit terms. Based on the above findings, this study recommends that the SMMEs decision-makers be educated on the competitive advantages gained by buying on credit, most important of which are improving cash flow and building supplier relationship. In addition, the decision-makers may be trained, perhaps through Government intervention, on how to overcome the factors that inhibit them from managing their accounts payable effectively, by using computers. The Government may also provide guarantees to SMMEs’ suppliers to relax the credit terms extended to these entities. This study makes several original contributions to literature. It is the first study to investigate the accounts payable management practices of SMMEs in the Cape Metropolis. Entities whose management of accounts payable had up till now been neglected appeared in the prior research to their peril. Secondly, this study provides a unique insight into SMMEs management of their liquidity by focusing on their management of most immediate obligations (accounts payable), which are critical for these entities’ survival given their limited access to finance. The proposed study thus fills the gap in research on the accounts payable management practices employed by SMMEs in South Africa. Although various studies have been published on the accounts payable management practices on SMMEs in other countries, no study was found within the South African context. This study therefore contributes to the debate on the accounts payable management practices of SMMEs in a unique context of South Africa and inspires other researchers to investigate the same in other Metropolis in the country

Highlights

  • Based on the above findings, this study recommends that the SMMEs decision-makers be educated on the competitive advantages gained by buying on credit, most important of which are improving cash flow and building supplier relationship

  • Various studies have been published on the accounts payable management practices on SMMEs in other countries, no study was found within the South African context

  • Given that most SMMEs preferred purchasing on cash basis, and paying promptly to take advantage of discounts, and bearing in mind that most of those that purchased on credit used computers to manage their accounts payable records, these entities appear to have managed their accounts payable effectively

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Summary

Introduction

Based on the above findings, this study recommends that the SMMEs decision-makers be educated on the competitive advantages gained by buying on credit, most important of which are improving cash flow and building supplier relationship. It is the first study to investigate the accounts payable management practices of SMMEs in the Cape Metropolis. The proposed study fills the gap in research on the accounts payable management practices employed by SMMEs in South Africa. This study contributes to the debate on the accounts payable management practices of SMMEs in a unique context of South Africa and inspires other researchers to investigate the same in other Metropolis in the country. Samuel Tabot Enow, Department of Management Accounting, Cape Peninsula University of Technology, South Africa. 37), accounts payable are a major source of short-term financing for businesses provided that they delay payment as long as possible without damaging their credit rating or pay on the last day when payment is due to take advantage of cash discounts. Put, settling payables on the last day of payment enables businesses to re-invest the funds that would have been paid to suppliers into the business, thereby securing an interest-free source of finance, provided cash discounts are not forfeited (Tauringana & Afrifa, 2013, p. 454)

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