Assessment of Working Capital Management Practices of Selected Medical Importers in Addis Ababa, Ethiopia

Abstract

The study seeks to add to assess the working capital management practices of selected medical importers in Addis Ababa, Ethiopia. This was motivated by the fact that businesses have been noted to rely on banks and other third parties to finance their working capital and getting that loan at times get difficult. They give less attention to efficient working capital affecting their viability and profitability. To achieve this, descriptive research design and mixed approach has been applied. A total of 186 questionnaires were distributed to medical importers operating in Addis Ababa. Respondents were manly accountants, finance heads, general manager and inventory manages. Respondents in general were found to have less experience in the industry, less qualified implying that the industry doesn’t attract qualified professional with the necessary experience or management doesn’t pay well to attract and retain those with good experience and qualification. Looking at the cash management, cash budgeting in general is done on monthly basis, and majority tend to recycle surplus cash within the business. When we come to receivable management, collateral is considered as the main consideration in expending credit to customers, most of the businesses have receivable follow-up mechanism in place by applying different approaches. For inventory management, they have different approaches to make restocking decisions. Among the different costs of holding inventory, the majority consider stockout cost as the most important. Most of the business take purchase discount form their suppliers by paying within the credit period. They also consider both internal and external factors in making working capital decisions. It is the recommended that the medical importers reexamine the factors that determine their working capital so that they come up with best practices of working capital that can militate against the challenges. The working capital management policy need to be changed from informal to formal to enhance the chances of the medical importers to be successful in their WCM.