Credit delay and business distress among SMEs: a case of selected government institutions in Lusaka district.

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Chilwana, Wesley
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The University of Zambia
Raising incidents of delayed payments to SMEs is an increasing concern by SMEs world over. Evidence from the federation of Small Businesses indicate that more than half of small businesses are not paid promptly by large companies with the average payment time of 163 days which is more than double normal contract terms. The aim of the study was to explore the business effects created by delayed payment to SMEs in Lusaka. The research used explorative study design. The study was conducted at the University of Zambia due to the high number of SMEs that conduct business with the institution. In view of this, an applied research Design was employed, and then the research was guided by the theory of cooperation. A survey questionnaire was used to collect quantitative data then analysed using chi-square test and the Pearson correlation at 5% confidence level. A total of 65 respondents were selected by simple random sampling technique and the sample size was determined to be 55. The research established that 38 percent of the respondents had experienced at least one payment delay in the past 12 months. The majority 48 percent of the late payments were experienced in the services sector, while the manufacturing and the trading sectors recorded 14 percent and 38 percent respectively. The data showed that 82 percent of the respondents were not aware of any of the coping measures for delayed payments therefore the study concluded that there is indeed a problem of delayed payments which is resulting into business distress among many SMEs and this has left a lot of them in positions that make their work inhospitable for survival of their enterprises which in turn also results in poor performance, low productivity and quality of goods and services offered by these SMEs all because of delayed payments. Then much worse-off it was discovered that most SMEs are not familiar with coping measures to assist them. The study therefore, recommended a number of strategies to be employed in order to reduce delayed payments and business distress which are: Strengthening Monitoring Processes and Better Enforcement of Current Policies, Development of a System Value Chain , Contracts by Government Departments Should be Validated and Approved based on the Availability of Funds to Pay Contractors, Strategies for Micro, Small and Medium Enterprises, Support Strategy for SMEs that have been in Operation for less than 5 years, Decrease the Cost for Recovering Late Payment, and last but not the least Interest and Cost Recovery Policy for Delayed Payments.
Small business--Zambia--Finance. , Small business--Zambia. , Business failures--Zambia.