msmegroup1-finalreport

MGT 4998 June 2015

Group Assignment – Final Report

Score

Members

Name ID Program Section

Cecilia EfendyEfendi

Ellen FredericiaHerman SalimSevin Alnovans

I12001390I12001386I12001899I12001395I12001388

BBUS (IB) 6IB1

Group name MSME Group number One (1)

Due date 27 July 2015

Marking scheme for Prelim Report - MSME

Group number: One (1)

Guide/ Scheme Feedback

Formatting and P

roject fulfillment

Fulfilled Group Formation requirements Fulfilled Kick Off Meeting requirements Fulfilled Check Point Meeting requirements Adhere to submission guidelines Availability of project standard cover page Availability of this Marking scheme is as the second page of

report Good design report structure with clear indication or underlining

of chapters/items/sub-topics Availability of Table of Content with accurate page numbering Availability of descriptive title for print screens, pictures, tables,

graphs, figures or illustration (if applies) Adhere to page limitation for each chapter Adhere to font and spacing requirements (Arial 12. double

spacing for writeup, single spacing for writeup in table)

Mark /10%

Group 1 – final report

MGT4998 – International Business Project (MSME)

Chap 1: B

ackground and Literature review

A write up to summarizes/ describe the following;1. Background and project deliverables

a) A background of your project Employerb) Long term objectives of this projectc) List and describe expected deliverables

2. Literature review on Trade Credita) What is Trade Credit and its standard practices?b) Discuss topic related to TC, which include, but not

limited to Internal management structure of TC (personnel,

headcount) Process/procedure to set or amend TC with new

client Calculation approach for TC related statistics

(Outstanding receivables, average length of terms, average write-off)

3. Literature review on terminologiesa) Review necessary standard definition deem relevant to

conduct your project (eg; SMEs, LCs, B2B, Retail sector)

Grading criterion 1. Display clear understanding of project objectives and

deliverables2. Display clear understanding of the conceptual and theoretical

background deemed relevant to the project3. Lit review is deem

a) Relevant to support delivery of project deliverablesb) Sufficient to prepare group for subsequent

discussion/interview process4. Addresses all necessary items5. Write up is deemed to have proper narration and structured6. Summary of literature is genuine, where link towards this project

objective is highlighted7. Availability of diagrams or illustrations to summarizes write up8. Adequate sources of literature/ references 9. Proper references to literatureMax 10 pages – excluding illustrations

Mark /40%



Chap 2: M

ethodology and Preparation

A write up to summarizes/ describe the following;1. Preparation for solicitation

a) Develop necessary solicitation material (eg; Solicitation email, call scripts)

b) Justify the design solicitation material. Your justifications may include, but not limited to;

Background of research Confidentiality and permission to record Voluntary participation Persuasion

c) Solicitation planning Detail action plan with timeline and responsibility

of each group members Address possible equipment, telecommunication

and transportation needs2. Design of interview questions

a) Open-ended questions Prepare a list of open-ended questions For each question, justify its

its link to project deliverables capability to draw “deep” response from

interviewee b) Structured questions

Prepare a set of structured questions that gauges characteristic of the organization (eg; SME, retail sector)

Prepare a set of structured questions that gauges characteristic of your interviewee (eg; age, position, job role)

A write-up that justify design of these structured questions

Grading criterion 1. Availability of finalized solicitation material2. Availability of finalized interview questions3. Availability of an detail solicitation action plan4. Solicitation preparation and planning are deemed to be

comprehensive, detailed and well-conceived5. Proper justification for all interview question and its deemed

related to topics discussed under literature review and is deemed necessary for project deliverables

6. Open-ended questions are deemed to be non-bias7. Structured questions are deemed sufficient to gauge

characteristics of organization and characteristic of intervieweeMax 15 pages – excluding illustrations

Mark /50%



Chap 3:A

nalysis of Findings and Recom

mendations

A write up to summarizes/ describe the following;1. Characteristics of interviewee and organization

a) A table listing crucial details for all interviews which has been conducted. (eg; contact info, name, interview time, location, duration)

b) Create necessary set of illustration to highlight the characteristics of your interviewee and his organization

c) Describe the characteristics of your interviewee and his organization2. Summary of interview findings

Prepare a table with the following headingsa) Category – a brief overview that describe the category of your findings (eg; Something new we have

learned / Management of TC, Retail sector)b) Finding – Describe your finding derived from interviewsc) Evidence – Evidence in the form of transcript with reference to exact time and audio file name, that

support or justify your findingsd) Strength – A form of numerical expression that indicates the level of dominant of your finding. Support

this numerical expression with a brief justification3. Recommendation for mass survey phase

Prepare a table to document the followinga) Category – a brief overview that describe the category of your recommendation. Category must include

the following, but not limited toi. Area for further investigation (development of questions)

ii. Solicitation recommendation (eg where and how to get participants)iii. Approach to calculate/ determine TC related statistics

b) Recommendation – Describe what exactly you are recommending and how to execute your recommendations

c) Justification – Justify your recommendations based on your findings. (eg; transcript, organization transcripts)



Grading criterion1. Submission of raw audio files, one for each interview, in mp4 format2. Submission of filled Non-Disclosure forms signed by interviewee in pdf file

with proper filename3. Availability of a table listing information deemed crucial and required for

public scrutiny4. Characteristic of organizations interviewed is deemed to be diverse and not

uniform5. Role and position of interviewee is deemed to be relevant to TC

investigation6. Availability of additional intuitive illustrations that is deemed supportive in

justification of findings as well as recommendations7. Finding is deemed to be insightful, non-bias and reveal new knowledge with

respect to TC practices8. Recommendations is deemed to be detailed, insightful and greatly advances

development of subsequent phase of mass survey9. All justifications are deemed to be factual, non-bias logical and based on

interview findings10. Minimum operational requirements

a) Member of 3 = 4 unique organizationsb) Member of 4 = 6 unique organizationsc) Member of 5 = 9 unique organizations

11. Extra credit for effort beyond min req as well as exceptional findings and recommendations

Max 15 pages – excluding illustrations



Table of Contents

Table of Content i

1.0. Chapter 1 – Background and Literature Review 1

1.1. Background and Project Deliverables 1

1.1.1. Background of MSME 1

1.1.2. Long-Term Objectives of Project 2

1.1.3. List and Description of Deliverables 4

1.2. Literature Review on Trade Credit 5

1.2.1. Trade Credit and Its Standard Practices for SMEs 5

1.2.2. Topic Related to Trade Credit 10

Internal Management Structure of Trade Credit 10

Process or Procedure in Setting Trade Credit 11

Calculation Approach for Trade Credit 13

1.3. Literature Review on Terminologies 16

2.0. Chapter 2 – Methodology and Preparation 17

2.1. Preparation for Solicitation 17

2.1.1. Solicitation Material 17

2.1.2. Justification of Solicitation Material – Email Only 17

2.1.3. Solicitation Planning 18

2.2. Design of Interview Questions 22

2.2.1. Open-ended Questions 22

2.2.2. Structured Questions 24

Group 1 – final report I


3.0.Chapter 3 – Analysis of Findings and Recommendations 25

3.1. Characteristics of Interviewees and Organizations 25

3.1.1. Detail of Interviewees 25

3.1.2. Interviewee and Organization Characteristics 27

3.1.2.1. Characteristic of Organizations 27

3.1.2.2. Characteristic of Interviewees 28

3.2. Summary of Interview Findings 29

3.2.1. Category – What We Have Learnt 29

3.2.2. Findings 30

3.2.3. Evidence 37

3.2.4. Strengths 39

3.3. Recommendation for Mass Survey Phase 41

3.3.1. Category 41

3.3.1.1. Area for Further Investigation 41

3.3.1.2. Solicitation Recommendation 42

3.3.1.3. Approach to Calculate TC Related Statistics43

3.3.2. Recommendations Execution 44

3.3.3. Justifications 45

Reference List 47

Appendix 51

Group 1 – final report I


1.0. Chapter 1 – Background and Literature Review

1.1. Background and Project Deliverables

1.1.1. Background of MSME

Malaysia SME is part of MSME Inc., a media group whose products are

available in the form of print, electronic, online, on air, mobile and events. Malaysia

SME media group was established in 2005 with the key areas include business

newspaper, community directory, business events, business sitcom and online news

portal. It is the pioneer and the only among media groups that focuses specifically on

covering news, updates, developments and events of SMEs within Malaysia and

across all regions. The location of MSME headquarter is at E-33A-3A, Dataran 32,

No.2, Jalan 19/1, 46300 Petaling Jaya, Selagor Darul Ehsan, Malaysia with its official

website www.malaysiasme.com.my.

Malaysia SME also has been awarded the “Sahabat Negara SME Award”

by SMI Association Malaysia for three consecutive years. It is awarded for its

tremendous and immense contribution in promoting and development of SMEs in

Malaysia.

MALAYSIA SME® business newspaper and MALAYSIA SME® Community

Directory are the two most reputable publication acknowledged by the SME

community in Malaysia. It enables readers to relish insights, analysis, profound

interview and coverage of numerous SMEs development, activities and initiatives.

Both have annual audited circulation of 50,000 copies and 130,000 copies

consecutively. A total of 50,000 complimentary copies are circulated monthly to

Group 1 – final report 1


http://www.malaysiasme.com.my/

SMEs, Government Ministries and Agencies, Associates and Trade Chambers and

Commerce, MNCs, GLCs and PLCs. The paper is also available for sale at

myNEWS.com, MPH, Borders and Popular bookstores nationwide. Moreover, there is

also online news portal which serves SMEs internationally which is named as

MSME™ News Network.

Other than publishing media, there is also event such as regular business

networking that acts as a platform for entrepreneurs to exchange ideas and build

lasting business relationship. Additionally, annual MALAYSIA SME® Congress is also

one of the most successful and longest running signature event by its organizer that

participated by a peak number of more than 7,500 SME businesses from six

successful congresses. By inviting successful international SME entrepreneurs as

well as renowned local SME entrepreneurs, this event provides continuous source of

motivation, inspiration and guidance for entrepreneurs.

Malaysia SME has also produced an entrepreneur sitcom called “Small

Mission Enterprise” which combines elements of educational and entertainment. It is

presented to the audience light comedy and dramatic manner and aimed to educate

and create awareness toward the importance of SMEs to Malaysians.

1.1.2. Long-Term Objectives of Project

From this project, there are three (3) long-term objectives can be derived

which will benefit to not only the employers themselves, but also to those students

who are doing this final project currently and to those next semester students. As for

the employer which is the MSME, this project involves our group as part of it to help



the MSME to investigate the current trend and practices of Trade Credit or Payment

Terms, terms offered by Malaysian SMEs to the customers especially to large

corporations. Besides that, the issue of late payment or non-payment has also been

the serious challenge for Malaysia Small-Medium Enterprises (MSMEs). In this case,

the goods or services sent will be the debt instead of profit. Surprisingly, those

customers are mostly from large corporations. This will eventually impact to business

growth, difficulty in paying staff, and so on. Hence, to identify and investigate this

issues stated above and to minimize the risks, there is a need to gather all the related

information from at least nine (9) SMEs. All information gathered will be only used for

research purposes and will not be shared to those who do not involve. A full set of

reports will be sent to authorize people as a proof to negotiate the average length of

terms.

As for us who are currently doing this project, it will help in enhancing basic

skills to deal with people by the way of interviewing the questions set before in the

report. In addition, the main objective for us in doing this report is to enable us to

conduct research in the future. Lastly, through this report making process, we will be

able to learn how to solicit employers who basically are very hard to be pursued.

Information gathered and the project done in this semester will be a crucial

foundation for the next project. Analyzing the trend and practices of Trade Credit in

Malaysia will result in understanding of how Trade Credit is practiced. If there is an

unusual trend or unfair practices being done, the data collected will be used for

improvement of practices.



1.1.3. List and Description of Deliverables

List of Deliverables Description of Deliverables

Preliminary Report &

Final Report

Final report is our expected deliverable in a form of tangible where background of the MSME has been described together with the long term objectives of this project.

This report also has addressed on the literature review in regards to current trend and practices of trade credit in Malaysia SME to their customers especially large business such as multinational company which concentrating on business-to-business (B2B) transactions; findings in respect of practices gathered from interviewing with at least nine (9) entities. A set of structured and open-ended questions have also been designed to this report together with e-mail as the solicitation method prior interviewing. Those questions set have the purpose of finding out the financial challenges and whether trade credit is one of the issues.

Those will be used as the equipment in the final report to summarize all the findings gathered after interviewing. At last, recommendations are given based on the findings. This final report will be submitted to the MSME employers as the material of proof to responsible authorities showing that there is an issue regarding to trade credit; late payment and non-payment.

Check-Point Presentation &

Final Presentation

Despite the tangible form of deliverable, This project also requires us to give intangible form of deliverable which is through presentation. The purposes of this project findings have been split to two presentations which are check-point presentation and final presentation. In the check-off presentation with the MSME employers, the preliminary report will be presented by slides explaining the objectives of this project and current trend or practices of trade credit.

For final presentation, findings from all information gathered by the way of interviewing at least nine (9) entities will be presented to fully understand the current practices and the main challenges that MSME faces in dealing with other



businesses such as trade credit. Recommendations will be given as to solve issues.

1.2. Literature Review on Trade Credit

1.2.1. Trade Credit and Its Standard Practices for SMEs

Financial challenges can be faced by any organization which one of them

is trade credit. The terms of trade credit has been well known even since thirty years

ago (Peterson & Rajan, 1997). However, according to Ferraro and Mulier (2012),

there was an increase of the use of payment terms from the mid-2009 during financial

crisis for the purpose of compensating the decline in short-term bank loans. With that

short history, the use of payment terms is expanding in every single business

including profitable or non-profitable organizations now and is expected to grow in the

future. For many organizations, trade credit or so called as payment terms is one of

the most important approaches for the purpose of financing in short-term basis and

financing growth.

Fitzpatrick and Lien (2013) in their journal states that trade credit refers to

as an agreement where suppliers allow the business they partnered with to delay the

payment for a specific period of time after the goods and services delivered in

advance. The authors added that by allowing the later payment after receiving the

goods or services helps to manage the short-terms cash flows of a business. It is

referred as the basic alternative funding source provided by financial institutions.



Additionally, Nilsen and Gerzensee (1999) found trade credit as the two-

sided phenomena where it is often used by small businesses that are suffering from

downturns of banks’ loans. Hence, they have no choice, but to use trade credit with

their suppliers. Cunat and Appendini (2012) added that it helps buyers to increase the

inputs purchase. Offered in this way, trade credit supposedly to be unfavorable for

suppliers, but they still have to use it to maintain and or gain long-term loyalty and

relationships of customers, and indeed to obtain higher sales, so that accessing to

capital markets is possible. However, both suppliers and buyers should consider the

rate of stock turnover, economic conditions, goods characteristics, location of buyer,

and many others as stated in the journal of Kalyanji (1999).

According to Cunat and Appendini (2012), there are two types of trade

credit agreements. The first type is net terms where supplier expected to accept

payment in a certain period after delivering the good. The period is usually specified

in the contract. For instance, “net 30” which means that the payment have to be done

during 30 days. Charge will applied if the payment is done not during the time

specified. Another type is two-part terms where the supplier will offer discount if the

payment is done shorter than the period of time set. For instance, “2/10 net 30” which

means that 2% discount will be given during ten days out of 30 days after delivery.

The main reason why trade credit is getting more attractive as stated by

Pike, Cheng, and Chadwick (1998) is mainly due to high transaction costs offered by

financial institutions. Other than that, it also reduces the frequent payments and

increases operating efficiencies. The importance of trade credit as stated by

Fitzpatrick and Lien (2013) in their journal are to act as an instrument for price



discrimination and to be used by businesses to verify the purchases quality before

having to do payment. However, despite the importance given, trade credit is also

giving disadvantages to businesses especially SMEs like late payment and or non-

payment which will be further discussed in this report.

The standard practices of trade credit is described in the figure below.

Ferrando and Mulier (2012) states that the use of trade credit of a firm can be said a

twofold process where suppliers give trade credit to an organization and, in turn, the

organization can extend trade credit to its customers (accounts receivable).

Figure 1. The Process of Trade CreditSource: Peterson & Rajan (1997)

However, trade credit has become too troublesome issue for some

organizations, especially SMEs, as it often gives disadvantages to SMEs that provide

trade credit to other businesses such as late payment and or non-payment. Globally,

according to Wehinger (2014) in OECD journal, Greek SMEs currently facing the

issue associated with trade credit such as difficulties in accessing finance due to

demand and supply constraints. It caused by non-performing loans (NPL) and large

business turnover. There is a decline in credit, therefore it is affecting on supply of

credit from banks. Credit towards Greek SMEs still remains expensive.



Other issue such as late payment for small business has been addressed

by UK legislation which was recently updated by the Late Payment of Commercial

Debts Regulations 2013. In fact, the large companies have the economic power to

rule or determine credit period to their small company suppliers (Collis, Jarvis, and

Page, 2013).

A standard contractual payment term is usually applicable for 15, 30 or 45

days, but large companies will demand for the longer terms. Based on interviews

conducted in US, one particular resource collected said that “There are some very

large corporations that bully you into very long terms. You have a 30-day term which

is a standard term you’re using, but they may bully you into 60 or 90 days” (Collis

et.al., 2013).

In South Africa, found that both the owner and manager of small

companies are not considering their access to credit was affected by their lack of

knowledge of finance. Small companies not study the supply financial information to

suppliers providing trade credit. It would appear that the assessment of credit risk

when suppliers grant trade credit to SMEs is also based on nonfinancial factors

(Collis et.al., 2013).

In Malaysia, the problems however, are not very different from those faced

by SMEs in other countries as some of the major ones are due to their smallness.

One of the issues is credit risk which refers to the possibility of default or delay in the

payment by the debtor. Other issues consist of inadequate financial support;

inadequate linkages with large industries; and limited market (Zainudin, 2009).



Figure 2. Incidence of Late Payment Reports by RegionSource: ACCA (2015)

Above figure shows the late payment experinced by Asia Pacific’s large

corporates and SMEs which includes Malaysia from Q1 2009 to Q3 2014. It states

that from that period of time, approximately 29% of Asia Pacific’s SMEs alongside

with North Americas’ has experienced late payment which caused by trade credit.

This considers to be low as compared with other regions, but it can be hurt enough

for Malaysian SMEs that currently generate 32% of Malaysia’s GDP.

In addition, below figure indicates that the percentage of Asia Pacific’s

SMEs experienced late payment has fluctuated steadily from Q4 2009 to Q3 2014.

However, it considers to be the third lowest in Q3 2014 among other regions

excluding Central and Eastern Europe and North America which consecutively to be

the lowest and second lowest.



1.2.2. Topic Related to Trade Credit

Internal Management Structure of Trade Credit

It is very important to get paid on time for the wellbeing and health of

financial in the organization. To maintain a healthy cash flow and beneficial

business required a good control of trade credit. A good credit control can

assist the company to stay away from severe problems such as late

payment or non-payment from customers. Hence, to achieve the good

control of trade credit, there should be people who can well manage the

trade credit (National Australia Bank, 2015). Below is about the internal

management structure of trade credit based on our understanding.


Figure 3. Incidence of Late Payment Experienced by SMEsSource: ACCA (2015)


Figure 4. Internal Management Structure of Trade Credit

Source: MSME Group 1 (2015)

Besides the people who manage the trade credit, a business can

actually prevent late payment or non-payment of such impact from trade

credit by applying insurance and or checking the credentials (Accelerated

Collection Services Pty Ltd, 2010).

Process or Procedure in Setting Trade Credit

Trade credit occurs when a company buy goods from a supplier that

may give permission to the company to delay their payment. When the



supplier granted the buyers a deadline for payment, effectively the supplier

is extending financing to the company. This will enable the buyer to have

enough time to obtain funds some other way and facilitate its short-term

financial plan (Peavler, 2015). After the discount period expire, this

adjustment normally requires a higher purchase price that is not reduced

by the discount. Besides, buyers who use to pay before deadline instead

pay within a fixed day, shorter time normally obtain a price lessening in the

amount of the agreed discount period. Therefore, trade credit allows the

buyer greater financing smoothness than short-term bank credit, which is

frequently available to enterprises as a current account credit that

customized to their operational requirements. Given this process is

unbroken by several phase of sales and production, without the granted

supplier credits being repaid by sales proceeds, or by bank loans, the

credit chain can keep on or may be overlap with others. The whole

process is restricted only by the relatively high interest rates charged and

by the discount period which is normally drive punctual repayment

(Bundesbank.de, 2012).

For instance, The owner of an ice cream stand sign a franchising

agreement, under which the distributor approves to supply ice cream stock

under the terms "Net 60" with a 10% discount on payment within 30 days,

and a 20% discount on payment within 10 days. This means that the

operator has 60 days to pay the invoice in full. The ice cream distributor

can do the same thing. Receiving trade credit from milk and sugar



https://en.wikipedia.org/wiki/Distributor

https://en.wikipedia.org/wiki/Franchising

https://en.wikipedia.org/wiki/Ice_cream

suppliers on terms of Net 30, 2% discount if paid within ten days, means

they are apparently taking a loss or disadvantageous position in this web of

trade credit balances. (Entrepreneur Staff, 2015).

Calculation Approach for Trade Credit

- Outstanding Receivable

According to Berman (2015), receivables refer to debts owed to a

company. If a business agrees to provide its products or services and

accept payment later, such as 30-day, 60-day and 90-day payment

terms, those items qualify as outstanding receivables until such time as

they are paid off.

- Average Collection Period

The average collection period or days sales outstanding can be

referred as the measurement of time that the buyers take to pay their

bills which shows the effectiveness of the business credit and collection

policies (Bragg, 2015). This ratio also specifies if the credit terms are

realistic. It is calculated as:

Therefore, possessing a

lower average collection period is seen as optimal, because this means

that it does not take a company very long to turn its receivables into

cash.



Agro Boards is a retailer that offers credit to customers with the

agreement that the payment will be made within 30 days. Some

customers promptly pay for their goods, while others are delinquent.

Agro Boards year-end financial statements list the following accounts:

Accounts Receivable: RM15,000 and Net Credit Sales: RM175,000.

Average Collection Period will be:

- Accounting for Bad Debt

Account receivable is created from selling goods or services on

credit. O’neill (1999) states that despite the good-faith efforts of the

parties involved, it turns out that the debtor is unable to pay the creditor

the amount owed and it is called bad debt. From the standpoint of the

company extending the credit, the account receivable created in the

transaction is not collectible, and should not be included in the current

assets. In fact, the debt may not represent an asset at all. At the

moment that collection becomes doubtful or impossible, the account

receivable must be removed somehow.

The first general method to get receivable off the accounts is the

direct write-off (O’neill, 1999). Assume that three months elapse after

the sale of the goods, and the RM1000 account is determined to be



uncollectible. Using the Direct Write-off Method, the entry to write the

account off would be:

The next method is the allowance in which estimation of the bad

debts are needed each accounting period. After an estimate is made,

adjustment entry for each period should be made (Helstrom, 2015).

1.3. Literature Review on Terminologies


Figure 5. The Direct Write-off MethodSource: O’neill (1999)

Figure 6. The Allowance MethodSource: O’neill (1999)


SME is Small and Medium size Enterprise which has characteristics that distinguish it from other business. For manufacturing sector, the employees are not supposed to exceed 200 or sales turnover not exceeding RM50 million. The employees should not exceed 75 or sales turnover not exceeding RM20 million for SMEs under services and other services (SME Corp, 2014).

B2B (Business-to-Business) is a transaction between two entities without involving customers. For instance, transaction between Malaysia SME with Shell (Arline, 2015).

Trade credit can be defined as a facility that allows purchase and delivery of goods and services without prompt payment. In other words, trade credit is an extension of payment after purchasing goods and services on credit. Normally, the length of trade credit given is 30, 60 or 90 depends on agreement signed by both parties (Ferrando and Mulier, 2012).

L/C (Letter of Credit) is a guaranteed document from the bank to pay the seller full amount of payment as long as the seller fulfil particular delivery conditions. The bank will cover the remaining amount of payment if the buyer can’t meet with the expectation (Gov.uk, 2012).

Bad debt is the situation when the buyer can’t cover the payment or the seller can’t collect the debt. There is possibility of debtor going to bankrupt or exceeding additional cost of pursuing the debt. Generally, bad debt will be written as an expense for the company (Accounting Tools, 2011).

Account payable referred as responsibility of the company to pay its short term debt to its creditors when the products and services purchased on credit. Account payable on the balance sheet is available under current liabilities. The company should pay account payable within agreed period of time (Parsons, 2015).

Account receivable referred when the customers owe money to the company on credit purchase and have not been paid although the goods and services are delivered or have been used. Account receivable on the balance sheet is available under assets. The customers should settle account receivable in short period of time, generally a few days to a year (Barad, 2010).

Credit Insurance is an insurance bought by the borrower that frequently pays for existing debts in the event of a death, disability, or even unemployment. The payment of credit insurance is similar like credit card in which the assure pay low percentage of charge for unpaid balance monthly (Morel, 2010).

Economic Condition is a condition affected by microeconomics (supply, demand, customer behavior of the company) and macroeconomics (Gross Domestic Product, national income, price levels) (Pettinger, 2013).

2.0. Chapter 2 – Methodology and Preparation

2.1. Preparation for Solicitation



2.1.1. Solicitation Material

(Refer to Appendix pg. 51 for solicitation email)

(Refer to Appendix pg. 52 for call script)

2.1.2. Justification of Solicitation Material – Email Only

As for this email, we have completed this project with compounded

solicitation material (emails and call scripts). This email is focusing on persuading

and attracting employers from SMEs Company to conduct interview. Basically, the

background of this project research is to get better understanding of the trends and

current practices of trade credit in the SMEs. Trade credit practice will be more

frequently occur within the SMEs that conduct B2B business model (Business to

Business). By doing this kind of solicitation material, we are able to capture the whole

images of the trade credit. BACKGROUND RESEARCH

As we are asking for the information that sensitive from their perspective

(such as financial information), we already stated that we are not going to reveal the

confidential information of the company and the name of providers because it is

conducted based on project or for research purpose. CONFIDENTIALITY

In the email, we have requested the permission to conduct interview for the

parties. If they agreed with the interview and willing to participate, we would call or

directly go to the companies to conduct the interview by ourselves. The information

provided will become the main findings for this project paper. VOLUNTARY PARTICIPATION

We also placed some persuasion point to convince them to do the

interview. We indicate the persuasion by the development or improvement of better

trade credit practice will be profitable for the SMEs to avoid these kinds of issues in



the upcoming future. By addressing the point such as participation to this project will

ease and reduce late payment for SMEs towards Large Company, it would be useful

information for the company and benefits them as well. We also stated that the result

of the project will be brought to the authority if necessary. PERSUASION

2.1.3. Solicitation Planning

On Tuesday 16 June 2015, we had a discussion for continuing our

progress. All of the members found the information about each company listed in the

contact list given. We also found other contacts outside the list as well. We identified

and differentiated the company based on its model (B2B or B2C) and size

(small/medium/large). After all the contacts sorted, then only e-mail could be

distributed.

On Thursday 18 June 2015, we conducted our next meeting. Previously,

we discussed the materials through social media (Facebook and Line). At this

meeting, we discussed about chapter two which is the methodology and preparation.

We started doing the solicitation email by referring to the grading scheme. Cecilia

Efendy and Herman Salim designed the solicitation email (completed with

background of research, confidentiality and permission to record, voluntary

participation and persuasion) which later would be attached to the email for further

information about the project.

While they were making the solicitation email to be attached, Ellen

Fredericia and Sevin Alnovans designed the initial email which would be sent to the

business contacts. After all completed, all of the members started to distribute the



emails. All the members have responsibility to reply the emails once it has been

received and to inform other members regarding the answer given by the SMEs.

On Friday 19 June 2015, one email from [email protected] had been

received. He had agreed to conduct an interview with us, but he had not given further

clarification about time and place. From 32 emails, only one company had replied so

far. The first SME we had found is located at Penang, so we only can have an

interview with SME via telephone or e-mail due to the time and place constraints.

Therefore, Ellen Fredericia had already done the call script for interview preparation.

If nothing is obstructed by the means that at least five (5) companies approved to do

the interview, the interview will be done through e-mail and via telephone. The

possible equipments would be voice recorder, speaker, and stationary. The

telecommunication will be smartphone. Lastly, rent a car will possibly be done if the

company request us to do face-to-face interview.

Figure 7. Cecilia Efendy's Timeline


16 June 2015 - Find contacts

of the company

18 June 2015 - Design

solicitation email

18 June 2015 - Distribute emails to entities

18 June 2015 - Contribute

designing initial email

21 June 2015 - Check emails and find other

potential contacts


mailto:[email protected]

Figure 8. Efendi's Timeline

Figure 9. Ellen Fredericia's Timeline

Figure 10. Herman Salim's Timeline



of the company

18 June 2015 - Design initial

email

18 June 2015 - Disribute eight

(8) emails

19 June 2015 - Reply to an

email

19 June 2015 - Done the call

script

16 June 2015 - Find

contacts of SMEs

18 June 2015 - Design

solicitation email


19 June 2015 - Email Dr Karling for

more contacts

21 June 2015 - Recheck

email and call script


of the company

17 June 2015 - Arrange all contacts list

found


19 June 2015 - Draft for call

script

21 June 2015 - Check emails and find other

potential contacts


Figure 11. Sevin Alnovans's Timeline

2.2. Design of Interview Questions

2.2.1. Open-ended Questions

No Questions Objectives

1 Are there any financial issues your company facing?

To observe financial problem faced by the company.

2 How do the financial issues occur? To know the process of occurrence.

3 What are the effects from the financial issues? To know the impact of the issues.

4 Who manage the financial issues? To know who is responsible of solving



of SMEs

18 June 2015 - Design initial

email


19 June 2015 - Done solicitation

e-mail justification

21 June 2015 - Distribute and recheck emails


the issues.

5 How many partners do the company has? Who are they?

To observe company’s relationship with other entities.

6 What are the advantages of doing the partnership? To understand the advantages of partnership.

7 How do you usually deal with your business partners in regards to payment?

To explore various types of payment methods.

8 Do you and your business partner have agreement on payment terms in conducting business?

To identify the payment terms practice in doing business.

9 If yes, do you give discount to those who pay earlier than the agreed time? And how many percent discount?

To identify the current policy adopted by the company.

10 If no, how do you avoid the request and what other options will you give to your business partner?

To discover the standard practice of discounts given.

11 Who are involved in negotiating in payment terms? To know the internal and external parties involved.

12 What is the average length of time period set for an agreement of trade credit? Are there any difficulties associated with it?

To understand the standard practice of trade credit In the company.

13 Do you give payment terms to new customers? Any requirement to obtain it?

To know whether the company give favorable benefit to their new partners.

14 If your company does not have any competitors, do you still give payment terms to your business partners?

To learn the company position in the market.

15 Are there any late payments or no payment occurred when providing payment terms? Is that normal?

To study about the issues that might occur from the trade credit practices.

16 What is the average delay in late payments? (if any) To identify the standard period of delay.

17 Do you charge for those who pay upon than the payment term? If yes, how many percent charge given?

To identify the current policy adopted by the company.

18 What are the most difficult challenges when dealing To know the barriers in dealing with



with the late payment or no payment? those issues.

19 How does the company usually deal with such issues?

To know the methods used to overcome the issues.

20 How the company manages the cash flow if those issues occurred?

To know how the company manage the cash flow in difficult situation.

21 How long usually it takes to solve the issues? To know the length of time used in solving the issue.

22 What are the systems used to check or investigate the issues? (if any)

To discover if there is any technology that could help investigate or solve the issues.

2.2.2. Structured Questions

COMPANY:

1. How long has this company been operating?

< 5 years (1)

> 5 years and < 10 years (2)

> 10 years (3)

2. In which industry your company is operating?

3. How many numbers of employees employed?

4. Does the company have partnership with any other businesses?

• Yes (1) • No (2)

5. Does the company have any branches?



INTERVIEWEE

1. How old are you?

• 19-25 (1) • 26-32 (2) • 33-39 (3) • 40-46 (4) • >46 (5)

2. How long have you been working in this company?

< 5 years (1)

> 5 years and < 10 years (2)

> 10 years (3)

3. What is your position in this company?

4. What is job role in this company?

5. Are you satisfied with your job?

• Yes (1) • No (2)

3.0. Chapter 3 – Analysis of Findings and Recommendations 3.1. Characteristics of Interviewees and Organizations

3.1.1. Detail of Interviewees

HOTO STAINLESS STEEL INDUSTRIES SDN. BHD.Name of interviewee Mark LimInterview time 8.10 a.m. – 8.25 a.m.Location Setia Alam Convention CentreInterview Duration 06 minutes 13 secondsContact info 603-31761768


PAN MALAYSIA CAPITAL BERHADName of interviewee Michael Oh Hong ChoonInterview time 8.25 a.m. – 8.40 a.m.Location Setia Alam Convention CentreInterview Duration 08 minutes 23 secondsContact info +6012-278 5560

ASCENDENT CERTIFICATION SDN. BHD.Name of interviewee Lua Kheng LeongInterview time 8.40 a.m. – 9.00 a.m.Location Setia Alam Convention CentreInterview Duration 05 minutes 09 secondsContact info +6012-375 2812



SUPERSHO (M) SDN. BHD.Name of interviewee Samuel GohInterview time 9.05 a.m. – 9.20 a.m.Location Setia Alam Convention CentreInterview Duration 17 minutes 21 secondsContact info +6012-300 4843

MEDIA SPECIALISTS SDN. BHD.Name of interviewee Lim Ai LianInterview time 11.30 a.m. – 11.45 a.m.Location Setia Alam Convention CentreInterview Duration 22 minutes 03 secondsContact info +6017-889 0935

OPUS IT SERVICES SDN. BHD.Name of interviewee William TohInterview time 1.20 a.m. – 1.35 a.m.Location Setia Alam Convention CentreInterview Duration 07 minutes 05 secondsContact info +6011-3709 3878

ABYRES SDN. BHD.Name of interviewee Basheer AliInterview time 1.50 a.m. – 2.10 a.m.Location Setia Alam Convention CentreInterview Duration 07 minutes 12 secondsContact info +6019-321 4499FLAVOR INN CORPORATION SDN. BHD.Name of interviewee William ArulInterview time 3.20 a.m. – 3.45 a.m.Location Setia Alam Convention CentreInterview Duration 20 minutes 18 secondsContact info +6012-226 9422


3.1.2. Interviewee and Organization Characteristics

3.1.2.1. Characteristics of Organizations

No Name of Companies

Years of Business Operation

Industry Numbers of

Employees

Partnership Branches

1. HOTO Stainless Steel

Industries Sdn. Bhd.

(3) Manufacturing and Process

>100 Yes No

2. Pan Malaysia Capital Berhad

(3) Investment Holding

(99) Yes (99)

3. Ascendent Certification Sdn. Bhd.

(99) Consultancy Service

(99) Yes (99)

4. Supersho (M) Sdn. Bhd.

(3) Trading and Distribution

26-50 Yes Yes

5. Media Specialists Sdn. Bhd.

(99) Marketing Communication

(99) Yes (99)

6. Opus IT Services Sdn.

Bhd.

(2) Outsourcing 1-25 Yes Yes

7. Abyres Sdn. Bhd.

(3) Information Technology

±50 Yes Yes

8. Flavor Inn Corporation Sdn. Bhd.

(3) Manufacturer for food flavors

±30 Yes No

*(99) = not specified, (1) (2) (3) = structured questions coding*All the description and illustration of organizational characteristics have been provided in the transcripts (see appendix pg. 55).



3.1.2.2. Characteristics of Interviewees

No Name of Interviewee

Age Working Years

Position Job Role Satisfaction of Job

1. Mark Lim (4) (3) Senior Manager

Finance and Administratio

n

Yes

2. Michael Oh Hong Choon

(5) (3) Director Audit Committee

and Development

Division

Yes

3. Lua Kheng Leong

(5) (3) Founder Metrology and Quality

Management

Yes

4. Samuel Goh (5) (2) Executive Director

Managing the operations

Yes

5. Lim Ai Lian (5) (3) Media Director/Partne

r

Planning Consultancy and Sales Training

Yes

6. William Toh (4) (2) Senior Manager

Regional Business

Development

Yes

7. Basheer Ali (5) (2) Chief Operating Officer

(99) Yes

8. William Arul (5) (3) CEO (99) Yes

*(99) = not specified, (1) (2) (3) = structured questions coding*All the description and illustration of interviewees’ characteristics have been provided in the transcripts (see appendix pg. 55).

3.2. Summary of Interview Findings



3.2.1. Category – What We Have Learnt

Category / Company

HSSI PMC AC S MS OITS A FIC

Practice Yes Yes Yes Yes Yes Yes Yes Yes

Decision maker

Sales Manager & Senior

GM

Director Sales Manager

Sales-people

Account person

or Sales-person

- Sales Manager

or Account manager

Marketing

Average Terms

70 - 90 days

D 1 – 5 months

30 – 90 days

30 days 30 days

30 – 45 days

60 – 120 days

Average Delay - - - - - 1 – 2 month

- -

Discount D No Yes Yes No D D No

Penalty No No No Yes No Yes - No

Late/no payment

No No Yes Yes Yes Yes Yes No

Management Yes Yes Yes Yes Yes Yes - Yes

New Customer No Yes Yes D - Yes D Yes

Requirement Yes - - Yes - Yes Yes Yes

System Yes Yes Yes Yes No Yes Yes Yes



Others GST - - - - - - -

*Company Name *AbbreviationHSSI: Hoto Stainless Steel Industries Sdn. Bhd. - : Not SpecifiedPMC: Pan Malaysia Capital Berhad D : DependsAC: Ascendent Certification Sdn. Bhd.S: Supersho (M) Sdn. Bhd.MS: Media Specialists Sdn. Bhd.OITS: Opus IT Services Sdn. Bhd.A: Abyres Sdn. Bhd.FIC: Flavor Inn Corporation Sdn. Bhd.

3.2.2. Findings

The objective of this project paper is emphasized on the trend and

practices of Trade Credit done by SMEs in Malaysia with Large Corporations.

Therefore, based on the categories above, the findings for each company have been

derived. The data is collected from interviewing 8 different SMEs in Malaysia even

though some data is not specified.

The finding derived from Hoto Stainless Steel Industries Sdn. Bhd. shows

that there is a payment terms practice in this organization. Sales manager and Senior

General Manager will basically involve in negotiating payment terms with their

business partner. The average length of terms given is 70 days, but it is negotiable

up to 90 days. For prompt payment, discount will be given with the condition that they

have to calculate back the interest. The issues of late payment or no payment is

identified. But, this company claimed that the control is good, so they have average

term of 70 days. However, with the existence of GST, this company has made it to 60

days. To avoid the issue, this company will most likely to manage the debtors.

Moreover, for new customers, this company will not give credit term. Hoto stated that



the provision will be made even though not so soon. Requirements for getting credit

are needed by new customers. Credit committee will be in charge for collecting

documentations and identify the turnover and partner’s financial situation such as the

bank account for the past three months. Basically financial situation is crucial to

identify whether its partner is creditworthy or not. Besides, personal guarantee is also

needed to enable this company to sue personally when they unable to pay. The

whole process of payment terms is controlled by credit control committee and flow

chart to analyze.

The next finding from Pan Malaysia Capital Berhad indicates that payment

terms is practiced by this company. Director will be the one involved in dealing with

the terms. The average term given varies depend on the project. If the project value

is RM50,000, then terms will be between two to three weeks. Moreover, if the project

value is more than RM 2 million, the terms given will be more than three months.

There will be no discount given to those who pay earlier since everything should

follow the schedule. The payment usually made by work in progress. This company

will ask for 30 percent upfront when the project is confirmed, 50 percent more when

material delivered to site, another 10 percent when equipment is up and the last 10

percent is collected after testing communication. With this kind of policy, the late

payment or no payment issue is rarely faced, therefore no cash flow issue in this

company. Moreover, this policy is applied to every customer including new customer

as well. The technological system used in this company is for remoting, recording and

monitoring whole process of payment terms practice.



Ascendent Certification Sdn. Bhd.’s findings indicate that there is a practice

of payment terms with other businesses. When negotiating the payment terms, the

internal decision maker involved is the sales manager. Moreover, the time period set

for an agreement of trade credit is usually one to three months. However, if the

businesses want to have extension, it will be up to five months. They do have given

discount to those who paid earlier, but it is a seldom activity. The director who we

interviewed states that there are late payment, but they never encountered no

payment when dealing with other businesses. Surprisingly, they do not charge to

those who pay late as they think relationship is very important. As it will affect the

company’s cash flow, the director will use his own savings to recover it. This

company does giving discounts to new customers with the policy only one month

given for them to pay back. To control the whole process of payment terms, the

company is using Management Information System (MIS) to regularize financial

reports for every level of management.

The findings from Supersho (M) Sdn. Bhd. describe the same with all

SMEs we interviewed. They do have payment terms practices in dealing with other

businesses where internal party involved in negotiating the terms is sales people. The

average length terms is usually 30 to 90 days where if the other businesses pay

earlier, they will get 1.5% discount. There are issues on late payment occurred in the

company where other businesses tend to pay late and order new product by

requesting quotation. Therefore, they will add on margin to cover up the interest

payment to the bank. Normally, it will be 25%, but 30% will be imposed to those who

often late. As this late payment or no payment occurred, the company will manage



the cash flow by using facility from bank such as banker acceptance and letter of

credit. They do check on trade record when giving payment terms to new customers.

The businesses will have to follow some procedure as a requirement for obtaining

payment terms from this company.

The findings derived from Media Specialists Sdn. Bhd. shows that the

practice between Media Specialists and other entities have agreement on payment

terms verbally (contract) and non-verbally. The decision maker that deals and

responsible in monitoring the process of payment term or trade credit is account or

sales person. The average length of terms for trade credit payment is 30 days and it

applied to the new customers as well. Furthermore, three different kinds of product

line in the company will be given three different credit terms. The first product is

advertisement booking where the customer should pay in front or booking will not be

given. The second product is service oriented where credit terms given to the

customers after services delivered. The third product is subscription online software

which the service will be terminated after 30 days late or no payment. There is no

discount provided for prompt payment. Media Specialists Sdn. Bhd faces issues

regarding to late payment when it comes to deal with large corporations. Advertiser

and communication industry (LC) pay within the normal days which is 60 days unless

they are given prompt payment discount. Delay can be very damaging because when

the amount of late payment is big, the company can’t cover for the supply, employees

and expenses. There are no charges imposed for late payment. However, no

payment never occur in this company because the management selective in

choosing the clients. The action taken by the company to prevent late payment is by



sending letter of demand to the customers or ask for split payment. There is no

technological system used to check or investigate the issues. The company use call

method to remind or monitor late payment. To summarize, Media Specialists feel

threaten because of the practice of Malaysia business culture.

The findings from OPUS IT Services Sdn. Bhd. shows that there is practice

of payment terms while conducting business with others. The negotiation of time

period of trade credit usually takes 30 days. But, it is subjected to customer

agreement. They look for negotiation where it can up to 60 days. However, the

business can still delay after the negotiation agreed where they will delay from 1 to 2

months. This company do give discount in payment terms when they order in bulk.

They also have late payment which is very common for local company, however it is

not a really big issue for their companies since they have a very good cash flow

management. Then, they do charge to those who pay late. This company do have

agreement on penalty where most of the time they just put in the white paper, yet

they do not really emphasis on penalty because they want to maintain a good

relationship with the business partners. When late payment or no payment occur,

they send sale account manager to follow up with finance. They do not really take

legal actions because they want some forms of return every month. Moreover, they

do give every customer payment terms including new customer. However, they

emphasis procedure toward which bank account you can actually pay through cash,

check or bank-in. They also see finance credit form and do some background checks.

Finally, they do have a finance system, this system is itself tell us that no money is

coming in.



The findings from Abyres Sdn. Bhd has shown that there is a practice of

trade credit with their customers/ suppliers, basically all of negotiating process

overseen by the manager or account manager. The average terms of Abyres Sdn.

Bhd has given range from 30 to 45 days. The party who make earlier payment able to

obtain discount are normally under special circumstances based on volume. Normally

the issues such as late payment or no payment occurred only few times and those

who cause it, will be imposed on penalty. When there is a new customer, they tend to

be very strict in negotiating which emphasizes on account registration/supplier/render

registration and credit worthiness procedure. The payment terms normally monitors

by using technological system.

The findings from William Arul as one of the CEO (Chief Executive Officer)

of Flavor Inn Corporation Sdn. Bhd has stated that they have practicing trade credit

from the last 12 years ago. Marketing people are the one who will be negotiating with

the distributor regarding about the trade credit. William Arul also highlighted that the

average terms to carry out the payment approximately 60 to 120 days and will be

given discount under certain circumstances such as the company is tight on the cash

which they will give 5% discount. Under certain stage, surplus fund occurs will be

giving longer credit term. The case of late payment and no payment are never

happened, however if there is such case, they will wait till they pay and that is

consider regular occasion. Other option is by currency option to maintain their cash

flow. Payment terms apply to all customer whether their new or existing customers.

The normal requirement to have business dealing with each other is by doing letter of



credit (LC). Finally, they do have system to monitoring all the payment terms dealing

with their customers.

3.2.3. Evidence

Category / Company

HSSI PMC AC S MS OITS A FIC

Practice 01:24 01:21 - 00:59 01:00 00:59 01:23 03:50

Decision maker

01:55 02:28 02:21 09:16 15:59 - 02:5403:13

07:54



Average Terms

02:10 03:01 01:3102:31

01:30 01:17 00:59 03:43 04:2805:29

Average Delay

- - - - - 05:32 - -

Discount 01:32 01:33 02:04 02:31 04:04 01:22 02:24 05:44

Penalty - - 03:48 03:2203:44

04:10 01:38 06:00 11:35

Late/no payment

04:13 04:09 03:25 06:1106:22

05:0607:5511:43

00:4101:3805:58

05:06 10:3411:19

Management 05:06 05:33 04:06 07:08 09:4514:05

03:4504:00

- 11:1012:48

New Customer

02:28 03:41 02:45 04:24 01:17 02:43 03:55 08:48

Requirement 02:47 - - 08:10 - 02:55 04:19 08:55

System 05:54 07:34 04:24 - 15:45 04:40 06:43 14:10

Others 04:13 - - - - - - -

- : Not Specified



3.2.4. Strengths

Category Strengths

Practice 8 out of 8 SMEs (100%). From all 8 SMEs that we interviewed, all of them do have payment terms practices in their daily operations with large corporations although the process on how they practice are different.

Decision maker

7 out of 8 SMEs (87.5%). All SMEs besides OPUS IT Services Sdn. Bhd. do specify the internal parties who are involved in negotiating the payment terms with the other businesses. Most of them (5 SMEs) will put sales people as the person in charged negotiating the trade credit with business partners.

Average Terms

7 out of 8 SMEs (87.5%). Pan Malaysia Capital Berhad is the only SME that does not state the exact time of average length terms given as they depend on the various projects from their business partners. Other SMEs do state the



average length terms which overall range from 30 days up to 150 days. However, some of the SMEs open for negotiating the extension request.

Average Delay

1 out of 8 SMEs (12.5%). Only OPUS IT Services Sdn. Bhd. that does want to specify their average delay of late payment by their business partners which is 1-2 months. The rest of the SMEs did not want to open their confidentiality by telling the average delay made by large corporations they are dealing with.

Discount 2 out of 8 SMEs (25%). Pan Malaysia Capital Berhad and Media Specialists Sdn. Bhd. and Flavor Inn Corporation Sdn. Bhd. are the SMEs interviewed that do not give discount to those who paid earlier than agreed time. The other three entities do have some percentage of discounts, but they all depend on certain conditions. Supersho (M) Sdn. Bhd. and Ascendent Certification Sdn. Bhd. are the only two companies that said “yes’ to give discount.

Penalty 2 out of 8 SMEs (25%). Penalty will be imposed by Supersho (M) Sdn. Bhd. and OPUS IT Services Sdn. Bhd. for those who often pay late. Supersho (M) will add on margin 25%-30% to the items ordered while OPUS only states the charge imposed on the contract, but they do not really practice it. Abyres Sdn. Bhd did not specify whether they impose penalty or not while the rest of the SMEs do not want to impose penalties with relationship as the main concern.

Late/no payment

5 out of 8 SMEs (62.5%). From all SMEs we interviewed, 62.5% of them do experience late payment and no payment. But, late payment is the most common case which has become a norm in doing business for SMEs. However, it is not the case for Flavor Inn Corporation Sdn. Bhd., Hoto Stainless Steel and Pan Malaysia. The companies do have issues, but they never felt threaten on that as they partners will definitely pay sooner or later.

Management 7 out of 8 SMEs (87.5%). All of the SMEs except Abyres Sdn. Bhd. do specify how they manage the cash flow if late payment or no payment occurred. Some of the SMEs will make use of the own savings, and so on. At last, if the issues are not solved, some of the SMEs will take legal actions as the last stage.

New Customer

4 out 8 SMEs (50%). Hoto Stainless Steel Industries Sdn. Bhd. does not provide payment terms to new businesses as they think it is not the right time to do so. But, the rest of the SMEs are providing payment terms, but Supersho and Abyres have put standard average terms for new customers and conditions to fulfill.

Requirement 5 out of 8 SMEs (62.5%). Pan Malaysia Capital, Media Specialist and



Ascendent Certification did not specify any requirement for new customers to obtain payment terms. However, the other 5 SMEs have some procedures and they do have background check on the new businesses that want to obtain it.

System 7 out of 8 SMEs (87.5%). Media Specialists Sdn. Bhd. does not have the system used to control the whole process of payment terms. They just call to chase for payment. The other seven entities have some kind of technological systems used to investigate the process of TC such as MIS, and so on.

Others 1 out of 8 SMEs (12.5%). Hoto Stainless Steel Industries Sdn. Bhd. stated that Goods and Services Tax (GST) has impact the average length terms they provided to decrease from 70 days to 60 days.

3.3. Recommendation for Mass Survey Phase

3.3.1. Category

3.3.1.1. Area for Further Investigation

After conducting interview with 8 SMEs in Malaysia and done

with the analysis of data gathered from the interview, we do realize that

although we have good points which we should improve for future

research, yet there are still many weaknesses to be reflected to.

We do realize that there are still many weaknesses that we must

reflect to. Our questions are not quite effective and sufficient. From the

questions set, we know that they did not cover all the specific areas of

payment terms in a mean that not too detail. Since the next stage research



will require mass survey instead of interview, one of our recommendations

for further investigation is to ask detailed questions on payment terms. The

area covered includes average delay, impact of late payment and

management of issue (e.g: cash flow).

Another recommendation is to investigate the correlation

between organizational size and payment terms practice. Organizational

size refers to how many employees that one particular company employed.

We suggest that questions regarding to organizational size should be put in

the survey question. Based on our findings, we found a trend between

organizational size and payment terms practice to new customer.

Lastly, it is known that Malaysian Government has just imposed

GST (Goods and Services Tax) recently. Therefore, mass survey stage

should take influence of GST to payment terms into consideration. In

addition, it is better to give the survey to variety of industries besides

manufacturing and services.

Overall, the more information that we have, the better outcomes

of the project will be. This paper is not only focus on one aspect, it also

allows the students or researchers to learn more based on the data

received. It becomes very important for the researchers to go out there and

learn something and not to box themselves on only focusing the listed

questions. Therefore, we can excavate more data and useful information to

be applied into the project.

3.3.1.2. Solicitation Recommendation



Based on the findings, we have found that there are several

recommendations needed to improve for a better practice of this project.

As for the solicitation email, firstly, our group recommends to

search and find the entities that fulfill the requirement as SMEs. It is

necessary to prepare set of email script. Email script is including the

statement of brief personal identification (Name and University), the

objective and brief overview of the project, and confidentiality assurance.

Email script together with the survey questions will be sent to SME entities.

The greater number of targeted SMEs, the more possibility of email replied.

Email replied should be responded quickly and. If the email is being

ignored several times, the action such as calling the entities should be

taken.

In order to get participants for the survey phase, it is possible to

check the website that list down all SMEs from different kind of industries

and from different places in Malaysia. Once it is found, students should do

a research about the company’s contact number and basic thing about the

company such as what kind of things they do or what kind of products they

produce. Moreover, students should also ensure that the targeted SMEs

are dealing with large corporations since this project is mainly focused on

SMEs which are dealing with large corporations.

3.3.1.3. Approach to Calculate TC Related Statistics



The average collection period or days sales outstanding can be

referred as the measurement of time that the buyers take to pay their bills

which shows the effectiveness of the business credit and collection policies

(Bragg, 2015). This ratio also specifies if the credit terms are realistic. It is

calculated as:

Therefore,

possessing a lower average collection period is seen as optimal, because

this means that it does not take a company very long to turn its receivables

into cash.

Agro Boards is a retailer that offers credit to customers with the

agreement that the payment will be made within 30 days. Some customers

promptly pay for their goods, while others are delinquent. Agro Boards

year-end financial statements list the following accounts: Accounts

Receivable: RM15,000 and Net Credit Sales: RM175,000. Average

Collection Period will be:

3.3.2. Recommendations Execution

From all the recommendations stated above, the execution of

recommendations have already stated specifically for each. At this point, brief and

general overview on how the recommendations should be executed is to do research



regarding on payment terms practice in advance. From the research, the students in

next phase can obtain more information and knowledge which can help them in

setting survey questions. The students must ensure the questions set are in

sequence and detail. For example, the trend of GST in Malaysia. The students may

use this trend to set the survey questions. Beside the questions personally set by

students, they may refer to the area of payment terms that we have recommended

above including average delay, management of issues, impact of late payment, and

correlation between organizational size and payment terms policy, but not limited to.

3.3.3. Justifications

We recommend average delay, impact of late payment and management

of issue as the area to be covered on payment terms is due to the reasons below.

Average delay is recommended because we did not provide sufficient

information about average delay the SMEs face. From eight SMEs we interviewed,

only one specified the average delay time by its clients. This shows that our finding is

not strong enough to make a speculation. Therefore, students should ensure that this

question is answered. Secondly, we recommend impact of late payment because we

did not provide that area in our findings. If we ask about the impact of late payment to

the company, we may discover variety of impacts. Based on our findings, we only ask

about the management of cash flow since we speculate that is the only impact that

late payment gives. Moreover, management of issue regarding cash flow provided in



our finding is not sufficient as well. Hence, students must dig more information

regarding this issue.

Regarding the payment terms practice, there is a need to further

investigate the correlation between organizational size and payment terms practice to

new customer. It is because from findings we found the trend that organizations with

number of employees of above 50 will have strict consideration of creditworthiness,

background check and trade record of the potential customers who want to apply for

payment terms. However, the findings we got are insufficient as there are some

companies not specify number of employees in their organization. If all of information

is specified clearly, the trend might be proved. Therefore, based on this speculation,

further investigation in this area should be done.

Lastly, one of the eight SMEs we interviewed mention about impact of GST

on how the average of terms is given to the clients. It shows that GST has decreased

the length of terms given. Based on this, we suggest GST should be investigated

further. Moreover, we suggest the next phase to better study variety of industries

because we only study manufacturing and services industry and we found that the

average length terms for both industries are different which is 30 days and 60 days.

In our opinion, the trend is not well-supported if only a few types of industries studied.



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Appendix- E-mail

Dear Sir/MadamRe: PERMISSION TO CONDUCT AN INTERVIEW REGARDING TO INTI’s PROJECTHello, we are students from INTI International University who are currently doing final year project with Malaysian SME (MSME), a business newspaper in Malaysia. With reference to the subject above, this e-mail is sent concerning about your kindness to conduct an interview with us either face-to-face interview or via telephone. We are pleased to conduct any of them.Please allow us to briefly introduce our research to you. This project is mainly focused on investigation of trend and practices of trade credit by SMEs in Malaysia with their business partners, especially large corporations. As the research topic concerns, it may require SMEs to reveal confidential and sensitive information such as financial information and information of business partners of the company. However, the company name will not be revealed to unless to parties involved in this final project and it is only used for research purposes.All the information collected will be analyzed and trend will be investigated in detail. By cooperating with us, SMEs have already involved in the development of the better practice of trade credit for SMEs in Malaysia. The result of our investigation will be developed more and then be brought to the authority. The objective is to ease the business operation by SMEs with their business partner, for instance shorten the average length of terms. This will benefit SMEs in term of better cash flow.After all, we are hoping to gain your support and generosity to make the project done smoothly. If your company would like to participate in the success of this final year project, do reply to this email or contact/WhatsApp us at +6011 1275 1091.Best Regards,Herman Salim



- Call Script

Hello, Good morning Ms/Mr _____

I am from INTI International University, and previously we have agreed to

conduct an interview today. As the information that I already attached in the email, we are

interested to know about the trend and current practice of trade credits within SME in Malaysia.

I realize your time is precious, therefore we will only ask for about 15 minutes.

Since we have opportunity for interviewing you, is it okay for us to record the whole

conversation for the academic purpose? We will keep the confidentiality of this interview.

Okay thank you Mr/Ms ____ for your kindness. We will begin the interview now.

(Session 1)

Open-ended/ Unstructured questions

(Session 2)

Structured questions

This information given will be investigated further. By conducting this interview, you will help to

enhance the development of the better trade credit practices for SME in Malaysia.

Thank you for your time and willingness to cooperate with us. Have a good day!



msmegroup1-finalreport

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