Despite the increased attention paid to the SME
sector both in developed and developing countries, there is comparatively
little knowledge about the process of financial management and to what extent
SMEs’ growth are being inhibited as a result of poor WCM practices. The research
undertaken so far has increased our understanding with regards to the overall
numbers of small firms, their characteristics, the number of jobs created, the
number of small firms concerned with the take-up and use of support schemes,
the number of firms that are using different forms of finance (Winborg, 1997)
and which economies in the world have probably the most dynamic SME
populations. However our knowledge on
process issues, such as financial management decisions in SME remains something
of a ‘black box’ (Deakins et
al., 2001). However, the biggest problem which most SMEs usually
face is that of a lack of liquidity, which is often the result of late payment
or poor credit management (Howorth and Wilson, 1998; Berry et al.,
2002). Ironically, their operations may
turn out to be very profitable in the long run, but due to liquidity (cash
flow) problems, they get into financial difficulties. On this note, Kolay
(1991) highlighted that firms need to
systematically plan for adopting suitable short and long-term strategies to
manage and avoid future working capital crisis.
Despite the increasing importance attached to small
scale economic activities across the globe there appears to have little
reported improvement in the financial management skills of small business
owners (Jarvis et al., 1996). It is surprising to note that no specific
research has been undertaken to tap the potential benefits that SMEs can reap
by adopting a good framework of WCM routines. This area has not received the
same consideration as the many other areas, ranging from start-ups to schemes
promoting the growth of the sector (Dewhurst and Burns, 1989; Jarvis et al.,
1996; Johnson and Soenen, 2003). There is a substantial amount of literature
providing detailed and carefully tailored advice to small business owners on
financial management. But none of them have specifically looked into the WCM of
manufacturing firms, where working capital is expected to form a large share of
total investment.
