Aspects of working capital management in selected Maltese construction companies

Abstract

Purpose: This study aims to evaluate the management of Working Capital (WC) and its different components in selected Maltese construction companies. It also attempts to set out a number of recommendations to improve Working Capital Management (WCM) in these companies. Design: The existing literature was first reviewed to obtain a better understanding of WCM and its components. Primary data was then obtained through qualitative research by conducting semi-structured interviews with 11 construction companies. Findings: The findings show that overall, all the firms interviewed give high importance to WCM. Some claimed bank as their most important component of WC, while others mentioned receivables or cash. Cost of labour was regarded as having the greatest effect on WC requirements. All stated that receivables are regularly monitored through an aged debtors schedule; however, few carry out periodic credit reassessments of existing customers. Most interviewees stated that cash is only kept for petty cash purposes and only few prepare a cash budget to monitor their cash position. As regards inventory, most interviewees stated that no stocks are held to guard against shortages as a Just-in-Time system is used, while payables are monitored through reports. Furthermore, most of the interviewees stated that their firm makes use of a bank overdraft facility to ensure liquidity. Conclusions: It was concluded that the companies interviewed do manage their WC in a more or less efficient manner; however, some still need to improve by implementing the recommendations proposed in this study. These include, amongst others, preparing reports on inventory movements, assessing and reassessing the creditworthiness of customers, negotiating better credit terms and preparing a cash budget. Value: Through this study greater awareness can be created among the companies interviewed, and others in this sector, regarding the importance to be given to WCM. The recommendations should contribute to improvements in their WCM.