The effect of delayed payment on cash flow forecasting of Ghanaian road contractors

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Delayed payment to contractors has a serious effect on early completion of projects in the construction industry in the world. Although there has been an effort to improve payments by Government of Ghana in the recent years, problems arising from payment issues are getting more severe. The study sought to unravel the effects of delayed payments problems facing Ghanaian road contractors. A deductive methodological approach was adopted for the study using literature search and surveys. The preliminary survey and literature search revealed a number of subjects that played a crucial role in this work. Among these were; the implication of delayed payment by the various stakeholders, its accompanying effects, strategic measures employed by contractors, suggestions or options necessary to mitigate delayed payments and finally, means contractors use to recover default payment. This study was restricted to Ghanaian road contractors. The survey was therefore carried out on fifty-two (52) A1B1 and A2B2 construction firms selected using Purposive and Snowball sampling. SPSS analysis was used to analyze the data collected. The survey revealed that, the rippling effects of delay in paying contractors were enormous. This includes; creation of cash flow problems, difficulty in procuring materials and services and creation of enormous stress on contractors, as the top three. In spite of all these draw backs, contractors put in some strategic ways or avenues to improve their cash flow. Respondents indicated that, there should be regular periodic payment, also payment of interest on default payment, and finally a defined time frame for payment. Delay of payment to contractors has numerous impasses which creates conflicts between the parties in the contract. Deductions from the survey revealed that, if pragmatic measures are not taken, delay of payment can hamper the growth of the Ghanaian road construction industry. As such the following recommendations can help improve the current situations if not totally eliminate the menace. They include the following: Enforcing clauses of late payment in contracts. This could be done by applying charges to overdue payments in the same way as liquidated damages have been applied; The government, which is the main employer, should introduce payment bonds and “Construction Guarantee Fund” schemes to enable road contractors to obtain bonds and guarantees at concessionary terms; Establishment of Construction Industry Payment and Adjudication Act which will help in the reduction of Payment Default and Dispute Resolution; and Finally, it is also true that needed investment cannot alone be generated through public financing and therefore private funding needs to be geared up. In conclusion, it is hoped that these findings would help in improving the payments problems of the Ghana road construction industry, and would be useful to draft a better way in seeking right for the contractors in attainment of payment on the predetermined time.
A thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirement for the degree of Commonwealth Executive Master in Business Administration