Question

This study examined empirically the cash management practices and its effect on the financial performance of
SMEs in Jordan. However cash shortage is a chronic challenge to these firms, and cash management is very
crucial to the survival and growth of small and medium enterprises.
To meet the objective of this study, the researcher sampled firms operating in various sectors of economic
activity. A structured questionnaire was used to collect primary data from the respondents which were analyzed
to generate frequencies and percentages.
The study revealed that only (32) percent from SMEs kept track of Cash Receipts and payment. and the majority
(67%) of respondents have no knowledge about cash control procedures. The study concluded that cash
management practices have influence on the financial performance of SMEs. The researchers recommend to the
need to for SME managers to embrace efficient cash management practices as a strategy to improve their
financial performance .
Keywords: Cash management, cash surplus, cash deficit, cash control, small and Medium enterprises.

(you should be able to answer the questions by reading the abstract of the article only):

A. Explain the issues mentioned in the abstract which the author would like to explore on.

B. Assume that you are the cash manager of such Enterprises, how would you support them with cash management practices for better financial performance of SMEs.

Answer 1

a. The author here likes to explore on the following issues as mentioned in the article:

1. Cash management practice

2. Keeping a record of cash receipts

3. A track of cash payments

4. Operation of bank accounts

5. Maintenance of propoer books and accounts

6. Cash control procedures.

b. Firms need to have adequate estimate of the cash requirements while ensuring liquidity at all times. The company must estimate cash requirements by preparing a cash budget. This will help the business estimate the cash surplus/ deficit to consider the trade off between the opportunity cost of holding too much or the cost of holding too little cash. A careful analysis of the previous cash flows should help in determining te optimal cash to hold. Cash management practices also include having control over the collection of accounts and payment of receivables.