EFFECT OF PAID ADVANCE PAYMENTS ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES (SMES): EVIDENCE FROM NIGERIA
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Date
2022
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Academy of Strategic Management Journal
Abstract
The study investigates the effect of paid advance payment on business performance of
SMEs and identifies solutions to the effect of SMEs paid advance payments in Nigeria. The study
adopts cross-sectional and survey research designs. Structured questionnaires were used to
collect primary data from randomly selected SMEs that are appointed distributors of local
corporate firms which operate in the foods, beverages, and breweries sectors of the Nigerian
economy. The results reveal that paid advance payments of SMEs to their corporate firms’
suppliers for which goods are not supplied timely impact negatively on their business
performance: It ties down their working capital which when it is a borrowed fund from financial
institutions is at cost. It prevents the SMEs from doing other profitable businesses, reduces the
business turnovers, increases the business cash conversion cycles, and invariably reduces the
business’s profitability. In view of the financial power at the advantage of the corporate firms, it
is recommended that government policies should mandate the corporate firms to publish the
stipulated time they would deliver goods for all paid advance payments of the SMEs after taking
into consideration the locations of the SMEs and transportation logistics. Thus, non-delivery of
the goods within the published stipulated time would earn SMEs interest on their paid advance
payment at Central Bank Nigeria (CBN) Monetary Policy Rate (MPR) for number of days the
actual time of delivery is more than the published stipulated time. This is to discourage the tying
down of the SMEs working capital.
Description
Staff publication
Keywords
Small-and Medium Scale Businesses, Advance Payment, Working Capital Management, Fast Moving Consumer Goods, Cash Conversion Cycle
Citation
Ololade, B.M. (2022). Effect of paid advance payments on performance of small and medium enterprises (SMES): Evidence from Nigeria. Academy of Strategic Management Journal , 21(S5), 1-11.,