CONTRACTORS’ CASH FLOW MANAGEMENT PRACTICES IN HAWASSA CITY

Abstract

Contractors follow certain procedures to manage income (inflows), expenditures (outflows), and deficits in their projects. Effective management of these components is essential to the survival and continual improvement of the competitiveness of construction companies and successfulness of the construction projects. However, in Ethiopia, management of these components of the cash flow exhibits performance shortfalls. The financial management practices of contactors in South Nations Nationalities People’s Regional State are poor and ineffective, and cash flow problems are problems of most contractors at different grade levels. Improving the performance needs understanding the practice and identifying the problems. It is in this light that, this study focuses on three specific objectives: assessing the current cash flow management practices of contractors, identification of causes of contractors’ poor cash flow management practices and the level of impact of contractors’ poor cash flow management practices on construction project performance in terms of cost and time. These objectives were achieved through quantitative and qualitative analysis of primary data; questionnaire survey and interview. Initially, different relevant literature were reviewed in depth in order to understand the practice and identify the variables for the questionnaire to address the objectives. The findings indicate that the cash flow management practices of the prime contractors are generally poor. The identified critical causes of these poor practices are lack of skill to manage cash flow, using payments for other purposes (not for the intended project purposes), poor project cash flow analysis, contractors’ dependency only on the client’s payments, poor project cash flow forecasting, and poor cash flow management strategies. These all causes have high negative impact on project time and cost performances.