The National Small Business Act, No. 102 of 1996, categorises smaller businesses into five different stages of development: (1) survivalist, (2) micro, (3) very small, (4) small and (5) medium-sized enterprises. This study includes only the latter two categories. Small businesses are registered entities operating on fixed business premises. They have a complex organisational structure, are owner-managed and may have a maximum of 100 employees. Medium-sized businesses differ only in that they can have up to a maximum of 200 employees (Malefane 2013:672).

With a high vulnerability to interest and foreign exchange risks, an increase in the targeted funds’ rate by the United States Federal Reserve could result in massive challenges when funding the dollar-denominated debt associated with importing (South African Reserve Bank 2017:11). Not only does this affect larger businesses that have the capacity to fund their imports from cash flow, but it greatly affects smaller businesses that are dependent on financing (Kohler & Saville 2011:468). Financial institutions regard SMEs as high risk because of their limited resources and production capacity, imperfect financial information and propensity to default on loans (Matthee & Heymans 2013:397). Financial institutions investigate three broad risk categories prior to financing SMEs: market risk, performance risk and specific risk. Market risk comprises sub-elements such as exchange rate risk, sovereign risk and commodity price risk (Matthee & Heymans 2013:397). Importing firms, for example, are at risk of their domestic currency depreciating between order placement and the final supplier payment due date. In South Africa, this risk is pronounced because of the extreme volatility of the rand (Matthee & Heymans 2013:397). Performance risk entails supplier risk, buyer risk and settlement risk (Davids, Meyer & Louw 2015:70–95). Small- to medium-sized enterprise-specific risks relate to industry competition, level of demand for their product and the industry in which the SME operates (Malefane 2013:671–690). These risks, and the factors discussed in the next section, affect a firm’s ability to effectively manage its financial supply chain.

Global sourcing is distinguishable from local or regional sourcing by exchange rate risk, longer distances, political or regulatory environments and cultural differences (Aydin et al. 2014:454). These factors increase the challenge associated with managing a global supply chain, introducing the need for a more strategic management approach (Calvo & Mart 2016:440). Global sourcing requires higher inventory levels because of longer lead times (Boute & Van Mieghem 2015:2085). Because the goods are purchased at reduced prices from global suppliers, the capital investment in inventory, and its associated financial burden, will either increase or decrease with global sourcing (Jain et al. 2014:1206). This depends on the scale of the cost saving compared to the cost of holding higher inventory levels (Boute & Van Mieghem 2015:2080–2099; Jain et al. 2014:1202–1222).

Two competing recommendations are introduced regarding global sourcing (Boute & Van Mieghem 2015:2080–2099; Jain et al. 2014:1202–1222). At one end, theory suggests sourcing from a small supplier grouping to reduce unit and fixed costs, lowering inventory investments. At the other end, it recommends splitting orders among a larger group of diversified suppliers in different locations, with various lead times, leading to lower inventory levels and therefore lower inventory investments (Jain et al. 2014:1204).

Boute and Van Mieghem (2015:2080) propose that combining multiple sources, with different skills and advantages, is more beneficial than single sourcing. Jain et al. (2014:1203) found that the effect of higher inventory levels because of global sourcing outweighs the lower procurement cost, and thus state that supplier diversification to reduce inventory investment is the better option. While Calvo and Mart (2016:436–455) acknowledge that dual sourcing is the superior strategy, they contend that in the absence of production costs, firms should seek as much flexibility in their supply chain as possible. They argue that suppliers will respond differently to pricing strategies when they are aware that they are not being awarded the full volume of the order (Calvo & Mart 2016:437). As a firm’s purchase costs account for roughly 60% of its revenue, emphasis should be placed on managing the financial supply chain alongside the physical material flow in a supply chain, especially in terms of inventory holding (Aydin et al. 2014:455).

Research shows that inventory and strategic sourcing models can have a positive impact on a firm’s financial position when financial flows are considered (Gupta & Lei 2009:4–18; Liebl, Hartmann & Feisel 2016:393–413; Raghavan & Mishra 2012:407–412). Firms must, however, consider the factors that affect their financial position when sourcing globally. Minimising inventory levels becomes challenging, as longer lead times and higher variability force firms to hold more stock in case of production stops (Jain et al. 2014:1206). Virgil (2013:140–153) and Wuttke et al. (2013:773–789) acknowledge the higher levels of inventory investment associated with sourcing globally, but argue that by effectively running the financial supply chain alongside the physical supply chain, the cost of this can be negated. These varying perceptions emphasise the need to consider the extensive impact global sourcing has on inventory investment and to address the following when planning/managing inventory levels: (1) unit procurement costs, (2) lead times, (3) fixed order costs and (4) delivery reliability.

El-Maude and Shuaib (2016:12–22) define working capital as the revolving cycle of capital a firm uses to invest in current assets (i.e. assets that are expected to turn into cash within 1 year) and to settle current liabilities (i.e. liabilities that are repayable within 1 year). Tauringana and Afrifa (2013:453–469) use working capital as a measurement tool to determine liquidity by focusing on cash flow, inventory management, receivables and payables. Through this tool, they determine the funds required for day-to-day business expenditure requirements.

Balancing working capital can be challenging. If firms opt for high inventory levels and extended trade terms, they can accomplish high sales levels, but at a higher unit cost (Famil & Ali I^˙hsan 2016:2). Higher inventory levels tie up cash flow, but avoid possible stock-outs. Extended payment terms from suppliers assist cash flow, but can be costly depending on the economic climate. Alternatively, attempting to reduce accounts receivable through reduced terms for buyers and strict collection policies may cause firms to lose sales and therefore lose profits (Famil & Ali I^˙hsan 2016:2).

For firms in both developed and developing countries, the objective of working capital management is to ensure they have regular, sufficient and consistent cash flow to fund day-to-day activities (El-Maude & Shuaib 2016:13). The way in which working capital is managed can have a significant impact on a firm’s profitability and cash holdings (Famil & Ali I^˙hsan 2016:1–14; Frankel, Levy & Shalev 2017:438–458). Inefficient management of working capital may lead to low levels of cash flow and the inevitable failure of the firm (El-Maude & Shuaib 2016:13).

While the responsibility for cash flow management lies with the finance department, the implications thereof affect a firm’s entire physical and financial supply chain (Fields 2016:226; Sula 2015:74–77). Firms must therefore effectively manage their cash flow cycle, as depicted in Figure 1.

The financial flows of firms are divided into the operating cycle and the cash flow cycle. The former refers to time between delivery of the goods and the collection of cash receivable, while the latter refers to time between the payment date for inventory and the collection of cash receivable (Virgil 2013:142). Small- to medium-sized enterprise importers must also ensure they take external factors such as capital market conditions and interest rates into account when managing cash flow (Atrill & McLaney 2015:420–454):

Balancing the operating and cash flow cycles with the internal or external financing available will shorten the cash flow cycle and therefore free up liquidity for the firm (Sula 2015:74–77; Virgil 2013:140–153). This is the essence of FSCM.

Financial supply chain management ‘parallels the physical supply chain and represents all the transactions and activities related to the flow of cash from a customer’s initial order placement, through to the final payment of the seller’ (Virgil 2013:143). This process is presented in Figure 2.

Because of the current global economic downturn (Osadchiy, Gaur & Seshadri 2016:1755–1777), pressure is being placed on financial managers to develop methods to improve cash flow. The following two sections define pre- and post-shipment FSCM tools that assist with managing upstream and downstream financial supply chains.

This study employed a generic qualitative research design (Kahlke 2014:40). By focusing on answering questions such as what, why and how the researcher linked the study to existing academic knowledge on the phenomenon under investigation (Neergaard et al. 2009:2). These questions were answered using verbally based representations of data, to derive meaning from the participants’ perspectives and experiences (Creswell 2014:19; Ritchie et al. 2014:3). The resultant descriptive information assisted the researcher in addressing the knowledge gap identified regarding post-shipment FSCM.

The study was conducted across SME importers in Gauteng, South Africa, where the scope of research was not industry specific, but limited by the size of firms investigated. This design was justified as it was used to link a specific phenomenon with existing research through purposive and maximum variation sampling, as well as thematic analysis (Percy, Kostere & Kostere 2015:76–77). The units of analysis were SME importers who met the required inclusion criteria. Twelve individuals, across six firms, participated in two semi-structured interviews per firm. Small- to medium-sized enterprises are registered entities operating on fixed business premises.

Purposive sampling in this specific context was done to add value to academic research by expanding on the work of Wuttke et al. (2013:773–789). The expansion came by focusing on SME importers in Gauteng, who are more harshly affected by changing market conditions than their larger competitors (Davis & Taha 2015:38–50). The study used homogenous sampling at a firm level. Firms were homogenous in the following criteria. Each firm was based in Gauteng and was actively importing goods from one or more foreign suppliers. The firms were either small or medium in size. To provide flexibility and an in-depth understanding of the topic, the researcher sampled firms across various industries to ensure maximum variation. This gave the researcher multiple perspectives across firms with different sourcing and financing strategies, allowing the identification of common themes across a diversified sample (Polit & Beck 2012:517).

As the research required the participation of individuals who possess similar characteristics, participants were sampled through homogenous purposeful sampling. The participants were supply chain managers, procurement managers, financial managers, financial directors or individuals who fulfilled these responsibilities internally. The supply chain managers or procurement managers were directly involved with the global sourcing, inventory management and import management of their supply chain. The financial managers or directors were directly involved with the payment of foreign suppliers, the management of accounts receivable and the management of working capital through the cash flow cycle. All participants had been employed by their firm for a minimum of 6 months at the time of the interview, to ensure data integrity. There were no requirements regarding age or gender of participants and each participant was interviewed separately to avoid biased responses. Table 1 presents the participants and their firms.

As the research used homogenous and maximum variation sampling, it followed the principle of data saturation (cf. Francis et al. 2010:1234). Guest, Bunce and Johnson (2006:65) define data saturation as the point at which no new information can be gained from further data collection and no new themes can be identified. A minimum sample size of five firms was investigated, with two participants from each firm being interviewed. Thereafter, two consecutive interviews, where no new themes emerged, were conducted to confirm data saturation.

As mentioned, data were collected through 12 face-to-face, semi-structured interviews; two per participating firm. Rowley (2012:262) explains that for the novice researcher, a semi-structured interview with a detailed discussion guide is an excellent starting point for generic qualitative research, as the interviewer seeks to gather information on participants’ experiences and opinions. The development of the discussion guide was led by the literature review. The first draft was critically evaluated by a qualitative methodologist and an experienced supply chain management academic after a pre-test was conducted with two experienced practitioners (Merriam 2009:95). No major changes resulted from the pre-tests and evaluation.

Interviews were conducted and all participants were interviewed in meeting rooms within their respective establishments. The average interview length was 48 min. Each interview began with a brief introduction to the purpose of the study and participants were assured of their anonymity and confidentiality. Each participant read and signed the informed consent form prior to answering any of the main questions. All 12 interviews were transcribed by the researcher within 48 h of completion.

Because of its flexibility, thematic analysis allowed the researcher to make sense of collective or shared meanings and experiences within the data. This allowed the researcher to identify, organise and understand themes within the data (Braun & Clarke 2012:57). Following the guidelines set by Braun and Clarke (2012:57–71), the researcher familiarised himself with the data by carefully reading and analysing each transcript and listening to each audio recording. Initial inductive codes were generated from the data and used to code segments of text from the transcripts. All redundant codes were removed and similar codes were combined through an iterative analysis. The revised codes were grouped under descriptive and overarching themes that were reviewed against the transcripts to ensure they covered all the necessary data patterns.

According to Creswell (2007:209), at least two techniques must be used for research to comply with the required trustworthiness criteria. The first technique, used to confirm credibility and confirmability, was peer debriefing. Consultations with a supply chain management academic and a methodology expert ensured all aspects of trustworthiness were addressed. The research process was enhanced by identifying potential pitfalls in the study’s design and making corrections where necessary (Creswell 2007:208; Polit & Beck 2012:594). This was coupled with adequately communicating participant anonymity and the lead researcher’s independent status to ensure forthright and honest information from participants. Secondly, a detailed description of the participants, methodology, research sites and study contents ensured the transferability of the study (Creswell 2007:209; Polit & Beck 2012:585–588). Through this detailed description and the credibility created by peer debriefing, the research can be deemed dependable.

The study received ethical clearance from the relevant research ethics committee at the University of Pretoria prior to data collection (approval no. 29258970/2017). An informed consent form was provided to each participant. It communicates the purpose of the study, the voluntary nature of participation and the assurance of data confidentiality and anonymity. Participant and firm names were replaced with pseudonyms to protect each participant’s identity and ensure honest responses.

Theme 1 identifies how SME importers manage their post-shipment financial supply chain with regard to short-term credit when funding the cost of imports from foreign suppliers. Wuttke et al. (2013:773–789) present a framework, which reveals that a weak working capital position pushes importers to focus on FSCM. While the research did not confirm this, it notes that SME importers in Gauteng are continuously evaluating both their financial and physical supply chains, regardless of their working capital position.

Theme 2 identifies how SME importers in Gauteng manage their post-shipment financial supply chains to align their local customers’ payment terms with their operating and cash flow cycles. The financial flows of firms are divided into the operating cycle and the cash flow cycle. The former refers to the time between delivery of the goods and the collection of cash receivable, while the latter refers to the time between the payment date for inventory and cash receivables collection (Virgil 2013:142). The sub-themes below address two aspects of cash receivable management, namely default customer payment terms and the positive alignment of cash receivable through profit margin management.

Theme 3 identifies which post-shipment FSCM tools SME importers in Gauteng are currently using. Using post-shipment FSCM tools, a firm can improve its liquidity levels by not having its own funds tied up in transactional stock while the goods are in production or transit (Wuttke et al. 2013:773–789). From the firm analysis, two participating firms made use of debtors finance and one firm implemented a TF product. Clearing agent financing was, however, used across all six participating firms.

The intent of the study was to build on the research of Wuttke et al. (2013:773–789) by exploring how SME importers in Gauteng manage their physical alongside their financial supply chains. The first research question addresses how SME importers manage their post-shipment financial supply chain with regard to short-term credit when funding the cost of imports. Herein the study adds to the current literature by showing how firms link their FSCM practices to their physical supply chain practices. It is found that SME importers in Gauteng are continuously evaluating their physical and financial supply chains, regardless of their working capital positions.

By managing exchange rate risks, negotiating pricing and payment terms with suppliers and managing their working capital positions with localised techniques, the participating firms are effectively evaluating and managing their financial supply chains. By alternating sourcing strategies, managing inventory levels and understanding the financial implications of the costs associated with importing, the participating firms are effectively evaluating and managing their physical supply chains. Herein the study adds to the current literature presented by Jain et al. (2014:1202–1222) by introducing the concept of inventory holding costs, associated with global sourcing, acting as a barrier to entry for potential new market entrants.

The second research question investigates how SME importers in Gauteng manage their post-shipment financial supply chain with regard to aligning their local customer payment terms with their operating and cash flow cycles. The findings indicate that SME importers in South Africa are at the mercy of standard trading practices when extending terms to local customers. This misalignment between accounts payable and accounts receivable, coupled with the extended lead times of sourcing globally, places enormous strain on a firm’s cash flow cycle. The findings, however, introduce the principle of aligning accounts receivable within the operating and cash flow cycles, by allocating a financing factor to profit margins to ease the financial burden.

The final research question identifies the current post-shipment FSCM tools used by SME importers in Gauteng. The benefits of debtors finance are identified as providing access to additional capital at a minimal cost. However, this method provides little assistance in aligning the operational and cash flow cycle. Trade finance, on the contrary, is identified as a higher cost method, but shows a positive effect on a firm’s working capital position, allowing it to align its cash flow and operational cycle.

Clearing agent financing was identified as a common method across all the participating firms. Through an extended payment term with clearing agents, firms can better align the gap created by long lead times and extended payment terms provided to customers. For SME importers, the use of a clearing agent is therefore crucial when managing the post-shipment financial flows of their supply chains.

Based on the findings, buyers can, to an extent, manage payment terms and prices with their suppliers. While there is little control over the payment terms provided to customers, the FSCM tools identified above can assist with managing operational and cash flow cycles. The assumption that the buyer is the driver of both upstream and downstream FSCM is therefore found to be true.

The findings of this study have four main managerial implications. Firstly, the findings contribute to the understanding of the benefits and pitfalls associated with extended payment terms provided by suppliers. While these terms may assist with the financial burden created by longer lead times, managers must ensure that they control the foreign exchange risks associated with the volatility of the South African rand. Taking precautionary measures, such as hedging the foreign exchange rate, allows firms to lock in their margins when selling their products locally.

Secondly, it is important for managers to note the opportunity costs associated with not holding stock. It is therefore crucial that firms not only diversify their sourcing to mitigate disruption risks, but also hold the correct levels of inventory for their forecast sales. While inventory holding can affect cash flow, having the stock on hand will ensure positive sales. It is also important for managers to consider the cost associated with holding inventory as a barrier to entry for competitors and use it to their advantage to gain further market share.

Thirdly, by understanding all the options of clearing agent financing, managers can minimise their financing costs by paying on a 7-day from invoice account during periods where the firm is cash positive. In periods where the firm does not have the cash funding necessary, they can request an extended term from their clearing agent to better align their operational and cash flow cycle.

Lastly, the research identifies the current post-shipment FSCM tools used by SME importers across various industries and their effectiveness in freeing up working capital. It is important that managers approach various financial institutions to investigate the suggested methods and create financial models to determine the benefits of each method for their financial supply chain.

Despite contributing to the current literature by showing how importers link their FSCM practices with their physical supply chain practices, the findings are based on only six SME firms in Gauteng. As SME importers are predominantly owner-managed, with very few cross-functional silos, it would be beneficial for future research to target larger firms with specialised finance and supply chain departments. This will provide a holistic view of the post-shipment financial flows of importers and the communication between multiple departments to reach a common objective.

While the outcomes of the study are aligned with the research questions posed, it is recommended that a focus on one specific industry may result in greater uniformity across results. As firms in the same industry deal with similar supply chain risks, disruptions and challenges, it would be beneficial to analyse the post-shipment financial flows of their supply chains to determine if they are using similar management techniques and tools to align their operational and cash flow cycles.

Lastly, the research identifies a new field of thought in inventory management. Findings indicate that effectively managing the financial supply chain alongside the physical supply chain can reduce the financial burden of holding additional inventory when sourcing globally. While the costs of holding inventory can act as a barrier to entry for potential competitors, further research targeted at firms who stock products with long life cycles and have high inventory holding costs could contribute to the field of inventory management and economics.