A survey of the working capital management practices among large building construction firms in Kenya
Working capital is the excess of current assets over current liabilities. It involves the financing and management of the current assets of the firms. Construction contracting firms in both building and civil engineering sub sectors require various types of efficiently managed assets in a different mix to successfully and profitably carry out their primary operation. This study carried out a survey of working capital management practices among large building construction firms in Kenya. The objective of the study was to establish the working capital management practices among large building construction firms in Kenya. This was a sample survey study A sample survey was deemed fit because the population was large and a census survey could not have been possible in terms of finances, time and manpower. The population of this study comprised 656 building construction firms which are categorized A - D depending on the value of work which they can undertake. The sample size comprised 37 firms selected from those registered in categories A - D in the contractors' register. The sample was arrived at through systematic sampling. The study used primary data which was obtained through the use of a questionnaire which had both open and closed ended questions. The questionnaire was administered using the drop and pick method. Data for this study was analyzed using descriptive statistics. The statistical package for social sciences (SPSS) version 17 was used to analyze the data. The findings of this study showed that all the surveyed firms prepared a cash budget and any idle cash was invested to earn some interest. The surveyed firms stated that uncertainty of payments, delayed payments by clients and fluctuations in price levels of building materials are some of the problems encountered in cash management. Of the surveyed firms, 82%, evaluate the credit worthiness of would be clients using the three Cs of credit, that is , capacity, character and condition. No model is used to assist in inventory management. The factors considered in determining the amount of stock to hold are: Availability of the stock, volume of operations, ordering costs, and carrying costs. All the surveyed firms purchase some of their requirements on credit. Seventy four percent of the surveyed firms take advantage of cash discounts offered by their suppliers and 51% practice stretching accounts payable. The challenges facing the building construction industry according to some of the surveyed firms include: Delayed payments by clients, price fluctuations of the building materials, many players because there are no barriers to entry in the industry making competition to be very stiff, and lack of adequate finance to carry out the project work and hence minimize relying on interim payments from clients. These challenges need to be minimized as much as possible by having the government put in place policies to favor the industry e.g. making it mandatory to include a price fluctuation clause in the contract agreement to take care of the price fluctuations, and severe penalties for any delayed payments.