The impact of online accounting software as a credit management tool on small business cash flow

Late payments occur frequently amongst businesses, and poor credit management processes are part of the fundamental causes of late payment. However, small businesses lack sufficient debt collection procedures as they operate without a credit control department. As such, they tend to experience eccentrically late payments and defaults by debtors. This is a major concern for small business growth. Online Accounting Software is the latest development in management accounting and information systems, however, the leading vendors of this software claim that it can manage credit sales for small businesses and can help to improve their cash flow position. In addition, the software is distributed in a standard format and can be modified to include a credit management add-on (provided from other vendors) to further help small firms with their trade credit management efforts.

This study tests the claims of such standard software vendors in terms of the effectiveness of the standard software in helping to improve the cash flow of small firms. It also examines the extent to which small business respondents who have modified their standard software have experienced improvements to their cash flow using a unified framework; specifically the Credit Management Activity Model. A descriptive quantitative methodology using multivariate ordinal logistic (logit) regression was employed to analyse data which were collected using SPSS 24 with median-centered variables. The results showed that the standard software was very effective in terms of improving the cash flow of small firms, and this supports the claims of the vendors. Moreover, users of the standard software experienced delayed increases to their cash flows after the implementation of the software. Nonetheless, the modified software helped its users to cope with the increasing complexities of trade credit management.

This study has made trade credit management in small business to business relationships more understandable, and has also enriched the existing body of knowledge in relation to financial management information systems by providing information as to the use of Online Accounting Software using small businesses in the UK as a point of reference. Future research can investigate the relationship between Online Accounting Software and the length of the operating cycle of small businesses. Future research should also explore the impact of such software on short and medium-term productivity increases, and the control issues that emerge from the safety and security of business data in relation to this software.