Financial Management Systems Are Of Great Importance To

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Financial management systems are of great importance to business success. There are many reasons why most firms plunge into financial disaster. Some of these factors include loss of market share, excess debt, management problems and technology changes (Kierulff & Peterson, 2009). Specifically, the successful management of working capital is crucial to the success of a business and their survivals to a great extend due to economic volatility. The pace at which new firms are established and the desire to own a business is fast but its management is vital, since the structure of businesses is changing quickly. This generates uncertainty, forces many firms to be innovative and to constantly review processes and practices in order to survive in…show more content…
It was to be specifically applied to these firms, but it should be able to apply the results in a modified way to other firms. The key question was how these firms manage their accounts receivable in the changing market conditions.

Background of the Study
Working capital constitutes four elements; cash management, account receivable management, inventory management and accounts payable (Mensah, 2011). As cited by Padachi (2010), Rafuse (1996) says that working capital starvation is generally credited as a major cause if not the major cause of business failure in many developed and developing countries. A business must therefore have clear policies for the management of each component of working capital. Eljelly (2004) as cited by Raheman and Nasr (2007, p. 279) says for working capital management to be efficient, planning and control of current assets and current liabilities should be done in a manner that will eliminate the “risk of inability to meet due short term obligations on one hand and avoid excessive investment in these assets on the other hand”.

Hence, working capital management is of particular importance to all businesses, since with limited access to the long-term capital markets, these firms rely more heavily on owner financing, trade credit and short-term bank loans to finance their needed investment in cash, accounts receivable and inventory. An active
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