The Effects of Delayed Payment on Small and Medium Enterprises in Cape Coast

Small and Medium Enterprises (SMEs) play a significant role in the development of every country. They create employment opportunities and contribute to the socio-economic development of the citizenry. However, SMEs face a lot of challenges in their operations including, mostly, financial challenges. One reason attributed to the financial challenges faced by SMEs is as a result of late payment from their customers who buy on credit from them. The study therefore sought to investigate the extent to which payment to SMEs delay, to examine the causes of delayed payments to SMEs and to assess the effects of delayed payments on SMEs using SMEs in Cape Coast as a case study. The research took data from both primary and secondary sources to get a deeper understanding of the issue of delay payment to SMEs. Literature was reviewed on delay payment to establish the parameters for the study. The data obtained from literature review aided the preparation of detailed questionnaire for a quantitative study. Structured questionnaire was distributed to respondents who belonged to SMEs to provide responses. 102 respondents returned their completed questionnaire for the study. Statistical Package for Social Sciences version 22 was used for entry of data collected. The study mainly used descriptive statistics to tell the story of delay payment and its effects on SMEs. The study identified that delay payment was prevalent among SMEs. Most of the SMEs received payment after 60-90 days contrary to the 30-day credit they mostly offered to their customers. Several causes of delay payment were examined. These include insufficient funds/ cash flow issues lack of proper invoicing or documentation, poor financial management and budgeting. Others include lackadaisical attitude of staff involved in payment processes and bureaucratic delays or red tape or internal control system. The study also identified effects of delay payment on SMEs to include adverse impact on cash flow management, long term business sustainability, reputational issues and many others. The study recommended that the customers of SMEs should respect contract terms and honour their obligations on time when they fall due. SMEs should enforce the contract terms and conditions on payment to claim interest on delay payments.