Antecedents of effective cashflow management of small and medium enterprises in Kampala

Abstract

The study investigated the antecedents of effective cash flow management among small and medium enterprises (SMEs) in Kampala, guided by three objectives: identifying the antecedents of effective cash flow management, assessing the challenges SMEs face in managing cash flows, suggesting strategies to enhance cash flow practices. A descriptive research design with a mixed-methods approach was adopted, and data were collected from 301 respondents, including SME managers and owners, as well as key informants from the Federation of Small and Medium-sized Enterprises (FSME) and Kampala Capital City Authority (KCCA). The data was collected using self- administered questionnaires and interview guides which helped to collect both quantitative and qualitative data. Quantitative data were analyzed using SPSS version 27, while qualitative data were processed using Atlas.ti version 9. The findings revealed that there were various antecedents towards effective cashflow management which were; regular performance reviews, cash flow forecasting, timely invoicing, and budgeting. These were further strengthened by the use of digital tools and financial training which significantly impact daily financial practices and decision-making processes within the businesses studied. Moreover, different challenges are faced by SMEs in managing cash flows. Some of these challenges are irregular customer payments, lack of financial skills and limited access to financial training, limited access to credit, poor record-keeping, tax obligations, high operating costs, delayed supplier payments, and the absence of budgeting tools. These constrain working capital, operational efficiency, and financial planning. Based on the challenges it is recommended that collaborative financial literacy programs should be implemented to enhance SME owners' understanding of cash flow management principles. Moreover, structured invoicing systems and digital payment reminders should be adopted to improve the consistency and timeliness of cash inflows in SMEs. In Addition, the adoption of simple digital bookkeeping tools by SMEs supported by basic training in financial documentation should be adopted to strengthen SMEs’ ability to track and plan cash movements more accurately and effectively.