Social Science Journal for Advanced Research

Introduction

Organizations mainly operate in two types of environments, internal and external. Those organizations which operate in an external environment mainly rely upon used resources to achieve their goals. The firms' business activities are also influenced by the external environment, which includes some constraints, restraints, challenges and opportunities. The survival and growth of the organization is influenced by these external factors (Voiculet, Belu, Parpandel, and Rizea, 2010). It is unfeasible for an organization to have some level of control over the external dynamics of the environment in which it operates. The performances of organizations are influenced or potentially influenced by exogenous factors of the external environment of an organization. (Njoroge, Ongeti, Kinuu, & Kasomi, 2016).

Organizational success and survival can be measured by their cash flow situations. Cash flow is the lifeblood of every business (Yamoah, G, 2016). To obtain the appropriate information regarding the source and use of virtually the entire financial resources for a given time span, cash flow information assists its financial statement users (Rose et al, 2007). Particularly, the cash flow statement contains information which includes details of operating, investing, and financial activities (Macve, 1997). Cash inputs are required for the continuous existence and growth of every organization. However, technological, political, economic, sociocultural, and legal factors all have an impact on an organization's cash supply.

Internal and external settings are the predominant types of environments in which organisations operate. To attain their objectives, organisations that function in an external environment rely heavily on utilised resources. The external environment, which consists of limitations, restraints, challenges, and possibilities, also influences the business activities of the organisations. These external influences have an effect on organization's survival and growth (Voiculet, Belu, Parpandel, and Rizea, 2010). It is impossible for an organisation to exert any degree of control on external dynamics of its operating environment. Exogenous aspects of an organization's external environment influence or may influence performance of an organisation (Njoroge, Ongeti, Kinnu, & Kasomi, 2016).

Managing cash efficiently involves the planning of how much cash to retain by considering the costs and benefits of having too much cash or having less or no cash. Cash management according to Atrill (2012) is the timely acquisition of information relating to a company’s cash flow which may include among other factors capital balances as well as receipts and disbursements. Managing cash effectively involves providing cash resources on time to ensure that the operations of the firm are run smoothly. Cash is a corporate asset and should be managed using basic tools and techniques to safe guard it. Good cash management practices are important to the success of each company, either it has enough cash or it has cash crisis. Muinde (2013) argued that manufacturing firms contribute to economic growth, create employment as well as help in eradicating poverty. Despite the role they play experience a lot of challenges especially in managing their cash flows.

A study by Sunday and Burani (2013) showed that the main problem in managing cash flow in manufacturing firms is that the owners do not record as well as bank their sales. This is caused by the fact that they do not have management skills. Similarly, lack of proper cash records contributes to the owner not being able to account, use and manage cash well. The owner is not able to do monthly reconciliation of the cash book as the records are not well kept. These reconciliations are important aspect of managing cash flows. This can help the owner to detect if there is any cash problem and correct it in time. Internal controls relating to cash are very important in cash management. Only few business owners have the knowledge of internal controls and their importance.

External Factors

A variety of forces influence a business’s ability to meet its targets. These forces are key variables in determining the cash flow position of a business. The external include political, economic, sociocultural, legal, technological and ecological factors. External economic factors that may have impact on the activities of a business include interest rates, inflation, employment factors and consumer behaviour. Canere (2018) asserts that the external factors that affect a business’s financial performance are above the control of the managers of the firm. These factors are controlled by strong economic and political players.

Claessens (2015) expounds that ecological factors ought to be of key concern to organisations as these factors are associated with natural resources required as input for supply products. Miles and Snow (2008) assert that organisations that align their business strategies to their external environment are likely to achieve more successes than those than do not adapt to their external environment.

External Factors Affecting Organizational Cash Flow

According to Beatham et al. (2004), institutions measure their performance in financial terms; turnover and profit. Various research findings on performance management, however, advocate for an emphasis on both financial and non-financial dimensions of organizational performance such as service quality, competitiveness, organizational flexibility, customer satisfaction, resource utilization and technology (Harris and Monticello, 2001; Atkinson and Brander-Brown, 2001). Cadogan et.al (2002) explains that the factors of an organization has significant influence on the cash flow performance; factors that influence organizational cash flow include technology, market changes, and competition and customer demands. According to Birgonul (2010), managing the negative and positive effects of external factors has the power to reform cash flow characteristics of an organization.

Economic Factors

According to Barkauskas (2014) economic factors have the biggest effect on cash flow of any given organization. Botezat (2003) states that the development and performance of organizations strongly depend on the growth of revenue. Ramanauskien (2010) noted that a rise in wages enables people to spend more money. This factor greatly affects institutions that collect revenue (Barkauskas, 2015).Entry modes having low break-even sales volumes such as indirect exporting are favored by a small market (Root, 1998). This becomes more applicable when the industry is concentrating on a specific smaller segment of a large market (Johnson, 2005). An agreement with the local distribution channels is vital to gain access to each national market. Shipping arrangements, documentation, and other issues over and over again make it hard and expensive for small companies to export (Leonidou, 2004).

generally, marketers can’t control these factors but instead take them into account (Armstrong and Kotter, 2000). Keegan et al. (1992) suggest that there are internal and external factors that influence consumer behavior; external factors include economic, demographic, situational, social, and technological factors while internal factors include attitudes and beliefs, learning needs and motives, perception and values, and personality.

Political and Legal Factors

The political-legal environment includes such factors as political stability, strategic development objectives, small and medium business promoting, the government executed institutional promotion and regulatory policy, the government’s support and the business of an institution’s regulating legislation. Legal and bureaucratic restrictions are one of the main obstacles to the development of revenue collection business. Usually, legal documents promote the revenue collection activity and therefore its performance but there are cases when due to specific conditions, the activity may be legally restricted (Barkauskas, 2015).

According to O'Connor (2000), political forces influencing cash flow in the business world include: wars and diplomatic relations, trade agreements, sanctions and embargoes, political trends and events, legislation protecting consumers and safety and health of the employees. Political inputs are most likely to happen in branches that affect certain political goals, such as native access to national resources, defense and employment (Porter, 1998).

If the market’s economy is a centrally planned socialist economy, political factors tend to have an impact on the entry mode and performance of the business (Root, 2008). According to Cheverton (2004), government actions are together with suppliers and customers part of the business process. Some kind of legislation can also belong to either political or legal forces depending on its nature and local circumstances.

The legislation is used to restrict for example marketing activities, particularly in industrialized countries (Yadin, 2002). According to Barkauskas (2015), ideal conditions for the development of revenue collection institutions are political stability, security, well-defined and functioning legal system, public goods provided by the state – infrastructure, environment, information.

Research questionnaire was used as main tool for data collection. Interview guide was also used to collect qualitative data. The study used simple random sampling technique to select respondents. Therefore, from among workers at National Savings and Credit Bank (NATSAVE) 285 respondents were selected. Yamane 1967 formula was used to determine sample size from a given population.

Reliability and Validity

In order to ensure reliability, the researcher used a pre-test the research instruments in a pilot study across several potential respondents to ensure that the understanding of the questionnaire was consistent across different respondents. The questionnaire was revised in order to address the issues in the questions that will not be easily understood or not similarly understood by the respondents in the pilot of the questionnaire. Thus, validity entails whether the study instruments/tools are able to measure what they ought to measure given the context in which they are applied. In order to minimize issues in relation to test validity, the questionnaire was designed as a close-ended questionnaire thereby limiting the responses of respondents to a positive response, a negative response, or no response to question posed. Given that questions were close-ended questions; the validity of questionnaire was accepted due to this approach which ensured that responses reflected the respondents’ unbiased perspectives.

Ethical Considerations

In this study, the rights and respect for privacy will be upheld. All the ethical principles which include informed consent, confidentiality, justice, anonymity, and protection from harm will be observed. Informed consent will be applied to participants by providing potential research participants with all the necessary information about a study so that they can make an informed decision about whether to participate or not. The participants will be assured of confidentiality and there will be no coercion whatsoever as a form of making the respondents participate in the research. All information collected will be purely used for the purposes of this academic research and confidentiality will be upheld. Using justice, the researcher will not expose one group of people to the risks of the research solely for the benefit of another group and therefore,

NATSAVE Rely on Government Grants to Support its Financial Operations

The study findings in table 6.2 below show that the National Savings and Credit Bank relied on government grants to support its operations. Majority of the respondents said yes, the statement only a few disagreed. This was represented by 95.7% and 4.3% respectively.

Table 6.2: NATSAVE reliance on government loans

NATSAVE’s Major Line of Income Comes from Loans

According to the study findings, NATSAVE’s major line of income come from loans. Research results indicate that who said yes represented 85% while those whole said no were represented by 15%. The findings entail that for a bank like NATSAVE, the major line of income is from loans.

Figure 6.2: Measures and strategies

Level at Which the Non-Performing Loan Impacted Cash Flow

The study findings in table 6.3 below shows that the non-performing loans at the National Savings and Credit Bank had the highest impact on the cash flow performance of the bank.

Table 6.3: How non-performing loans impacted NATSAVE

Effects of External Factors on Organizational Cash Flow

When respondents were asked if external factors had an effect of cash flow performance of an organization. Majority agreed, a small number was not sure while only very few disagreed. The findings in table 6.4 shows the effects of external factors on cash flow.

Table 6.4: Effects of external factors on cash flow

Measures to Improve Cash Flow

To deal with the external factors affecting organization cash flow, the results in table 6.5 below revealed that the majority of the respondents agreed that closely monitoring monetary expenses,

Table 6.5: Measures to improve cash flow

Furthermore, the findings indicate that the negative pattern has been due to decline in interest income and increase in non-performing loans. This means that NATSAVE primarily earn income through the interest charged on loans and other investments. When interest rates drop or borrowers refinance their loans at lower rates, the bank's interest income may decrease, resulting in negative cash flow. Non-performing Loans (NPAs) refer to loans that are in default or close to default. Due to the number of NPL increasing, it has negatively impacted the bank's financial cash flow as it has set aside provisions for potential loan losses. It was also revealed that the negative cash flow pattern has been caused by economic downturn because for the past few years Zambia’s economy has not been stable. Similarly to the findings above, Cody (2020) explains that when a bank has a negative cash flow pattern it entails that is giving out more money than what it receives owing to a number of factors affecting its operation.

External Factors Affecting Cash Flow in the Organization

The study findings show that majority of the respondents 69% stated that political factors and economic factors greatly influence organizational cash flow respectively. These were followed by technological factors at 20%, legal factors at 6% and sociocultural factors at 5%. Therefore, according to the study findings, it can be deduced that these external factors which include economic, technological, sociocultural and legal factors affect cash flow at the National Savings and Credit Bank. The coefficient results indicate that the predictors (economic, technological, sociocultural, political and legal factors) and cash flow had a statistically significant relationship. The study established that organization cash flow is affected by political factors, which include how regulations and policies imposed by the national or local government affect the way business is conducted. Import and export restrictions make it difficult or uneconomical to do business across borders. Economic factors which include different types of taxation and other duties paid to the local authorities affect cash flow to a greater extent. Inflation: High inflation rates can erode the purchasing power of the bank's income and affect its profitability. It can lead to increased costs of operations, including employee salaries, maintenance, and other expenses.

On the other hand, a booming economy can result in increased consumer spending and higher cash flow. Technological advancements can both positively and negatively impact cash flow. Adopting new technologies may enhance productivity, reduce costs, and increase cash flow. However, failing to keep up with technological advancements or investing in outdated technologies can hinder cash flow due to inefficiencies or missed opportunities.

Sociocultural factors encompass societal attitudes, beliefs, values, and lifestyle preferences. Changes in consumer behavior, trends, and preferences can influence cash flow. For instance, shifts in consumer preferences towards sustainable or ethical products may require organizations to adjust their offerings to maintain cash flow. Political factors include government policies, regulations, stability, and geopolitical events. Changes in taxation policies, trade agreements, or political instability can impact cash flow. For example, an increase in corporate taxes may reduce cash flow, while favorable trade agreements can expand market access and improve cash flow. In tandem with the above findings, Salihu (2015) is of the view that political factors such as corruption and weak governance can have a detrimental effect on the bank's cash flow. Mismanagement of funds or diversion of resources due to corrupt practices can lead to financial losses and impact the bank's cash flow.

Legal factors consist of laws, regulations, and legal frameworks that organizations must adhere to. Compliance costs, legal disputes, or changes in regulations can directly affect cash flow. For example, increased regulatory requirements may necessitate additional resources or investments, impacting cash flow. The above study findings are in tandem with Anatan (2017) who asserted that economic, technological and political factors are among the external factors that greatly affect organization cash flow. The study findings indicate that technological and economic factors ranked highly presented many challenges that various organizations often had to deal with. Theses result demonstrates that external environmental complexity has a bearing on the cash flow performance of an organization.

Additionally, Yamoah (2016) observed that the drivers of external environmental complexity are distributed across socio-economic, political, technological, legal and socio-cultural environments.

For example in line with the study findings above, the study by Canare (2018) established that by offering a range of financial products such as insurance, investment options, or credit cards, banks can increase their revenue streams and generate additional cash flow.

His study also revealed that providing superior customer service, personalized banking solutions, and innovative digital platforms can help attract and retain customers. This, in turn, can lead to increased deposits, loans, and transaction volumes, thereby improving cash flow. Implementing efficient processes, automation, and technology solutions can reduce operational costs, streamline workflows, and improve overall productivity. This can result in cost savings and improved cash flow for the bank.

Effective risk management practices, including thorough credit assessments and monitoring, can help mitigate loan defaults and minimize non-performing assets. This ensures a healthier loan portfolio and improves the bank's cash flow. Offering various fee-based services such as account maintenance fees, transaction fees, or advisory services can generate additional revenue and improve cash flow. Banks need to maintain a balance between liquidity and profitability. By optimizing liquidity management strategies, banks can ensure they have sufficient cash reserves to meet customer demands while maximizing returns on their assets (Canare, 2018). Therefore, according to the study findings, effective implementation of the above measures can determine how the improve cash flow of an organization because if they are not implemented effectively, nothing can change in terms of cash flow.

Conclusions and Recommendation

Conclusion

The organization’s cash flow performance is usually associated with a number of factors. This study revealed that external factors have adversely affected cash flow if not managed. Among these external factors are economic, technology, sociocultural, political and legal factors. The level at which these factors affect cash flow is very high and is a matter of concern to the organizations such as National Savings and Credit Bank (NATSAVE).

• There is need to carry out related research involving more one banking institutions to help come up with feasible strategies in the future that can be used across organizations in improving cash flow performance.

References

1. Belobo, A. B., & Pelser, F. (2014). Cash flow management: Assessing its impact on the operational performance of small and medium size enterprises at the Mafikeng local municipality in South Africa prior to the global financial crisis. Mediterranean Journal of Social Sciences, 5(27), 226-234.
2. Canare, T. (2018). The effect of ease of doing business on firm creation. Annals of Economics and Finance, 19(2), 555-584.
3. Haabazoka, L., Nyikosa, K. K., & Mwanaumo, E. (2021). A study of internal factors affecting commercial banks’ provision of bank services in the new digital economy for developing countries: A case study ZANACO bank of Zambia. in Modern Global Economic System: Evolutional Development vs. Revolutionary Leap, 11, pp. 1091-1115. Springer International Publishing.
4. Lamberg, J. A., Lubinaitė, S., Ojala, J., & Tikkanen, H. (2019). The curse of agility: The Nokia Corporation and the loss of market dominance in mobile phones, 2003–2013. Business History.
5. Mark, J., & Nwaiwu, J. N. (2015). Impact of political environment on business performance of multinational companies in Nigeria. African Research Review, 9(3), 1-10.
6. Musembi, D. M., & Sporta, F. (2023). Effect of investments on cash flow of manufacturing firms listed at the nairobi securities exchange. International Journal of Finance Research, 4(1), 25-46.
7. Njoroge, J. K., Ongeti, W. J., Kinuu, D., & Kasomi, F. M. (2016). Does external environment influence organizational performance? The case of Kenyan State Corporations. Management and Organizational Studies, 41-51.
8. Nwanyanwu, L.A. (2013). Hire purchase strategy of physical capital Investment and financial performance of construction companies: Illustrating from the Nigerian Stock Exchange. Mediterranean Journal of Social Sciences, 4(4), 449-460.
9. Ross, J. R., Fazzari, S. M., & Petersen, B. C. (2007). Financing innovation and growth: Cash flow and external equity. The Journal of Finance, 64(1), 151-185.