Diagramas de secuencia

According to Gill, et al. (2010:3), there is a relationship between debtor collection and cash conversion cycle and the creation of value for shareholders, hence business growth. Gill, et al. (2010:3) studied the relationship between working capital and profitability where the cash conversion cycle (CCC) was used as a standard measure of working capital management. The results of the study revealed that the cash conversion cycle, which reflects the time span between disbursement and collection of cash, has a strong relationship with business profitability that eventually determines shareholders’ value and business growth. Furthermore the results suggested that one way to increase shareholder value is by reducing the cash conversion cycle while making good timing of cash disbursement.

In the study about working capital management and business performance in emerging markets where the majority were informal businesses, Abuzayed (2012:158) established that the CCC determines how long cash for future investment purposes is held in short- term inventory and accounts receivables. It was concluded that the longer the CCC, the slower the growth of businesses as cash and profits are held in accounts receivable and inventory.

In concurrence with Gill, et al. (2010:3) and Abuzayed (2012:158), Nazir and Afza (2009:31) established that the CCC affects business growth through profitability by highlighting that the longer the CCC, the more profitable ventures that would promote business, is delayed. The study also concluded that managers can create a positive value for the shareholders and promote business growth by reducing the CCC up to an optimal level, although no definition of the optimal level of CCC was provided.

More related studies conducted revealed similar results with regard to debtor collection CCC and cash disbursement and the growth of informal businesses. For instance, in the

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study about effective working capital management in informal businesses in Nigeria, Kehinde (2011:271) established that most informal businesses have debtor management problems. It was specifically established that most informal businesses do not manage their working capital and debtor accounts in particular in such a way to enjoy maximum profit. Furthermore it was found that the combination of debtor management strategy, cash management, accounts payable (creditors) and, most importantly, the inventory management strategy left much to be desired as it negatively influenced the growth of informal businesses.

Dumbu and Chabaya (2012:90), while assessing the impact of working capital management practices on the performance of informal businesses in Zimbabwe, established that the majority of the informal businesses are very slow at collecting debtors as most of them do not provide incentives to speed up the CCC. They further established that credit is extended on personal relationship rather than a business relationship with no securities. Therefore bad debt losses are very high which results in high business failure rates. In the same context, Agyei-Mensah (2012:574) noted that the majority of informal businesses sometimes sell their products or services on credit but have no ideal debtor collection strategies with the resultant effect being bad debts, bankruptcy and business failure.

Vural, Sökmen and Çetenak (2012:488) also concurred that debtor collection, CCC and cash disbursement are highly related to business growth. In the study of the effects of working capital management on business performance in Turkey, Vural, et al. (2012:488) established that debtor management is an important aspect of CCC as the delayed collection of cash from debtors implies greater investment in working capital components and this causes greater financing needs. In so doing, interest expenses will be higher which leads to higher default risk and lower profitability, yet profitability is one of the basic measures of business growth.

Similarly, Mauchi, et al. (2011:1301) noted that cash disbursement was a function of accounts payable and includes all outlays of cash by the business during a given financial period. The objective of cash disbursement is to control payments and minimise

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the costs associated with making payments. In particular, Mauchi, et al. (2011:1301) argued that the objective of cash disbursement is to delay payment as long as it is legally and practically possible. In pursuing this objective, a business should not compromise its relationship with suppliers as they may withdraw trade credit creating problems in the long run and ultimately inhibiting business operations and growth.

It is thus evident from the review that debtor collection, CCC and cash disbursement are highly related to informal business growth as cash is always tied up within debtors, yet it is demanded for various motives, namely, transaction, precautionary and speculative (Mauchi, et al., 2011:1300) that influence the profitability and business growth. Specifically, it is shown that delayed debtor collection leads to a longer CCC hence limited availability of cash for investment to enhance business profitability, expansion and growth (Gill, et al., 2010:3). It is further evident from the above review that informal businesses sometimes sell on credit but have poor credit management policy which leads to an accumulation of bad debts, limited liquidity, insolvency and business failure. However, business with proper credit management policy realised their cash in time and made timely investment decisions which spurs business growth (Agyei-Mensah, 2012:574). Hence it is apparent that the relationship between debtor collection, CCC and cash disbursement may be positive or negative depending on the effectiveness of debtor management policies and strategies.

4.3.5 Relationship between short-term investment of cash surplus and growth of