Abstract

This study looks at the effect of cash management on the performance  of  small  and  medium enterprises (SMEs) in Limbe, Cameroon. Cash management was measured using cash control methods and cash collection methods performance was measured using profitibility. The survey method was used wherein 40 SMEs in Limbe where surveyed. Although the number of SMEs surveyed was not large, the survey was distributed across all the SMEs in Limbe to ensure representativeness.

Data was obtained through a structured questionnaire designed for that purpose and the data was analysed using descriptive and regression analysis with the help of Statistical Package for Social Sciences (SPSS). The hypothesis was tested through a correlation test, and it revealed that there is a strong positive relationship between the variables (r=0.859) whereby 73.7% of performance of SMEs could be attributed to cash management.

The study concluded thus that cash management variables have a significant impact on the performance of SMEs. The study recommends that there is dire need for the management as well as staff charged with managing cash to undergo training in managing performance metrics in order for operation-level decisions to be attached to the expected outcomes.

The study further recommends that SME managers should invest their cash surpluses in ventures that yield high returns such as treasury bills or in overnight call accounts which yield high returns. This will help avoid keeping large cash balances in non-interest-yielding current accounts.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In reality, Small and Medium Enterprises occupy a very important place in developing, as well as developed countries’ economy, considering its contribution to national income, employment, exports, and entrepreneurship development (Storey D. J. 2016). Micro And Small businesses already contribute significantly to Cameroon’s economy. According to Enumedi (2018), at least 90% of enterprises in Cameroon are micro and small businesses and employ nearly 70% of the population.

Given all these credits to micro and small businesses, the enterprises have however been facıng numerous problems including lack of efficient access to finances from the banks and other ending institutions and collapsing of the MSEs due to mismanagement (Koril, 2019: MESPT, 2017 Kyendo, 2015), since small business (especially micro) are generally poor, and there are no facilities for cheap credit, they fall into the clutches of money A lender who charges a high rate of interest.

The knowledge and skills of effective cash management are one of the major factors that contribute (immensely) positively to the performance and sustainability of micro and small enterprises. Cash is seen as one of the components of current assets which tend to be highly liquid and can either be cash at bank and the cash hand ash management is concerned with the management of cash into and out of business, management of cash flows within the firm as well as the management of the balances of cash kept that is been handle by the entrepreneurs at a point of time by funding deficit or investing surplus cash. Managing cash is all about the entrepreneur ability to buy assets, pay workers, service as well controlling operation of the business. Cash is regarded as the backbone of every business.

Whether large or small, all businesses apply different types of resources to perform their functions and operate. Cash represents one such vital resource that can have multiple effects on the success of the company. Cash is usually represented by all the liquid cash available with the business on hand and its cash deposits in the bank. In financial terms, cash is a component of the business’s current assets; therefore, it is a huge component of the  business’s working capital that is meant to be used for its day-to-day operations (Schroeder & Kacem, 2019).

Cash constitutes a very significant portion of the current assets of Small and Medium Scale Enterprises because cash is both a fundamental resource and the means by which the entity acquires other resources (Prempeh, 2016). Considering the level of investment required for cash in Small and Medium Scale Enterprises it is essential to manage cash efficiently and effectively in order to avoid idle or shortage resources and also ensure production continuity.

Inefficient management of cash can lead to under-utilisation of capacity and loss of profit. The under-utilisation of capacity can intensify the unemployment problem in any economy. For instance, many small and medium enterprises in developing nations have failed in financial performance mainly because of lack of knowledge or limited knowledge on cash management (Macharia, 2019).

For cash to be managed, the entity needs the ability to purchase assets, service debt, pay employees, and control operations. Thus, effective cash management directly correlates with the entity’s ability to realise its mission, goals, and objectives.

Management of cash covers many activities and has its major purpose as controlling the company’s cash flow and efficiently managing its funds. Efficient management of cash flow is vital for all companies. Soaga (2016) points out that the aim of managing cash is to find optimal cash level for creating the highest level of performance for an entity. The major components of cash management lie in the two aspects; financial reporting and financial management (Kinyajui, 2016).

Under financial reporting the cash management tools include the cash flow statement, cash and bank reconciliation and the cash book. In financial management the components of cash management are credit control, cash position, cash planning and cash flow projection (Katz & Green, 2019). The success of enterprises largely depends on a number of factors including sound cash management practices (Attom, 2016). The essence of cash management is to ensure positive cash flow for smooth business operation (Abioro, 2018).

Barrett (2019) documents that the underlying objective of cash management is having enough cash available as and when it is needed, and that sound cash management involves better timing of expenditure decisions, earlier collection and banking of revenue, and more accurate forecasts of cash flows. This helps minimise the cost of any borrowing that is necessary and facilitates investing surplus funds to achieve the best return overall.

The techniques of cash management and the degree of sophistication in business processes will vary from entity to entity and will be influenced by an entity size, geographical location and the nature of its operations. This can be exhibited by the fact that small and medium level enterprises with diverse branches located in different regions within a given country or in different countries normally will try to adopt the cash pooling technique in managing its cash since it takes into consideration cross currency variations thus eliminating currency risk exposure (Ondiek et al., 2015).

However, the perception of cash management is not different like that in Cameroon. Globally in Limbe, there exist many micro and small businesses. Some of these enterprises include clothing vendors’, book venders’, shoe vendors’, saloons, bakeries, poultry vendors, restaurants, hotels, tomatoes sellers, provision shops, micro institutions just to name the few. The operation of these businesses through employment has contributed tremendously to the booming nature and growth of the area.

Due to it hospitality nature, it has therefore let to the cohabitation of other inhabitants who are not indigenes of the area. These enterprises are however facing some challenges. Some of the problems encountered by these Businesses include absence to get micro credits, inadequate Infrastructures, bad debts challenges as well the absences of good record keeping and bank accounts problem. Also, poor financial performance was equally seen as an issue to these micro and small enterprises.

It was therefore because of this that the researcher decided to carry out a study in these enterprises. So, it was observed that, they equally encountered issues with their cash planning, control budgeting, and collection as it was noticed by these MSMEs in the Limbe. Therefore, this study intends to examine the relationship between cash management and the performance of small and medium scale enterprises in Limbe-Cameroon.

1.2 Statement of the Problem

 

Cash management is necessary because there are mismatches between the timing of payments and the availability of cash.

Even when the annual budget is balanced, with the realistic revenue and expenditure estimates, year budget execution will not be smooth, since both the timing and seasonality of cash inflows and of expenditures can result in conditions of temporary cash surpluses or temporary cash shortfalls (Lienert, 2018). However, studies have noted that cash shortage is a chronic challenge to most firms, and yet cash management is very crucial to the survival and growth of micro and small-scale enterprises (Attom, 2016).

Lobel (2018) found out that improper accounts preparation and inadequate cash management procedure were some of the major challenges facing organisations leading to close up of the enterprises. SMEs are in enhancing self-employment as well as minimizing poverty and increasing growth of the economy. Even though they are very significant, evidence shows that SMEs slump within the initial months after establishment (Kimunyi, 2015). Sharu and Guyo (2015) indicate that SMEs have low chances of survival, with major challenges prompting 60% failures with regards to performance before 3 years of initial operation.

Mungai (2018) after carrying out a study on 45 private hospitals to determine the relationship between working capital management and financial performance of private hospitals in Kenya using data from the financial reports of the 45 listed private hospitals from 2002 to 2008, by using both regular and panel data analysis showed that there exists a positive relationship with working capital management signifying that profitability increases with increase in inventory and average accounts payable while decreasing with increasing average accounts payable.

Furthermore, the researcher discovers that, the poor performances observed in micro and small enterprises in Limbe are as result of the poor cash management practices in these enterprises. In fact, these enterprises face a lot of challenges with their cash management practices (Information from the owners of micro and small enterprises Limbe, 2022).

For instance, in the cash planning, they are facing problems like having a very vague estimation of the amount of cash they will have in the next month, did not have a proper plan for their expected cash inflows and outflows. For the cash budgeting, the problem observed is that they fail to practice sound cash forecasting to know when they will experience the peaks and slump of the business cycle. As it was found out by Mong (2017) that, only 28°% of the  small businesses drew up cash budget.

With the case of cash control, these owners cited that, they don’t have good safeguarding cash procedures as well as sound record keeping procedures and equally at times fails to issues receipts on their invoices issued. On the part of cash collection, the researcher noticed that these micro and small enterprises face issues of bad debt as well as debtors’ payment period.

As it is asserted that, sound receivable timing helps for businesses success. It’s therefore out of this poor background that the researcher seeks to ascertain whether this poor financial performance observed in this micro and small enterprises is being resulted in the poor cash management practices among them by providing answers to the following research questions:

1.3 Research Questions

1.3.1 Main Research Question

The main research question for this study is; “What is the effect of cash management on the performance of small and medium scale enterprises in Limbe”?

1.3.2 Specific Research Questions

1. What is the effect of the cash control method on the performance of small and medium-sized enterprises in Limbe?
2. What is the effect of the cash collection method on the performance of small and medium-sized enterprises in Limbe?

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