Determining the business environmental factor constructs relevant to small and medium-sized enterprises trade credit management

Abstract

Background: Within the conceptual paradigm that the business environment of South Africa could significantly impact on small and medium-sized enterprises, (SMEs) management of trade credit, the need exists for internal and external business environmental factors to be constructed, in order to understand how SMEs rate these factors.

Aim: The research purpose was to identify and construct relevant internal and external business environmental factors and obtain SME ratings for these factors to statistically test the validity and reliability of the measurement instrument.

Setting: This study was conducted by administering an online questionnaire.

Method: Quantitative research design with purposive sampling as the sampling method, administrated to 10 450 SMEs within South Africa.

Results: A descriptive statistical analysis revealed that the highest quality internal and external business environmental components were managerial competencies and ethics, respectively. Factor analysis resulted in the formulation of five internal and six external business environmental factors. In addition, SMEs do not rate internal and external business environmental factors equally. Managerial competencies obtained the highest overall mean score for all business environmental factors, including the highest for internal factors. Small and medium-sized enterprise and debtor ethical performance obtained the highest means score for external factors.

Conclusion: The formulation of newly constructed internal and external business environmental factors relevant to SMEs’ management of trade credit.

Contribution: As far as can be established, research identifying variables and constructing internal and external business environmental factors relevant to SME management of trade credit has not been conducted in South Africa. The newly formulated internal and external business environmental factors broaden SMEs’ understanding of which business environmental factors are relevant to SMEs’ management of trade credit, including how SMEs rate these factors.