The impact of the South African business environment on SMEs trade credit management effectiveness

Abstract

Background: Given that the impact of the South African business environment on small and medium-sized enterprises’ (SMEs) management of trade credit is largely unknown, this article argues that certain internal or external business environment variables could significantly impact SMEs’ management of trade credit effectiveness, making it necessary to ask the impact of business environment in South Africa on SMEs’ trade credit management effectiveness.

Aim: To determine the impact of internal (managerial competencies, collateral, financial and business information and networking) and external (legal system, ethics, macroeconomy and corruption) business environment variables on SMEs’ management of trade credit effectiveness.

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: The results reveal several internal (5) and external (4) business environment factors significantly impacting SMEs’ effectiveness in managing trade credit.

Conclusion: The article reveals how internal and external business environment factors contribute to increased SME effectiveness in managing trade credit and, in so doing, helps mitigate financial problems associated with SMEs’ trade credit as a result of asymmetric information such as adverse selection, moral hazard and credit rationing, while also understanding the significance of corruption on SMEs’ effectiveness in managing trade credit.