MSMEGroup1-FinalReport

MGT 4998 June 2015
Group Assignment – Final Report
Score
Members
Name ID Program Section
Cecilia Efendy
Efendi
Ellen Fredericia
Herman Salim
Sevin Alnovans
I12001390
I12001386
I12001899
I12001395
I12001388
BBUS
(IB) 6IB1
Group name MSME Group number One (1)
Due date 27 July 2015

GROUP 1 – FINAL REPORT
MGT4998 – INTERNATIONAL BUSINESS PROJECT (MSME)
Marking scheme for Prelim Report - MSME
Group number: One (1)
Guide/ Scheme Feedback
FormattingandProjectfulfillment
 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%

MGT4998 – INTERNATIONAL BUSINESS PROJECT (MSME)Chap1:BackgroundandLiteraturereview
A write up to summarizes/ describe the following;
1. Background and project deliverables
a) A background of your project Employer
b) Long term objectives of this project
c) List and describe expected deliverables
2. Literature review on Trade Credit
a) 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 terminologies
a) 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
deliverables
2. Display clear understanding of the conceptual and theoretical
background deemed relevant to the project
3. Lit review is deem
a) Relevant to support delivery of project deliverables
b) Sufficient to prepare group for subsequent
discussion/interview process
4. Addresses all necessary items
5. Write up is deemed to have proper narration and structured
6. Summary of literature is genuine, where link towards this project
objective is highlighted
7. Availability of diagrams or illustrations to summarizes write up
8. Adequate sources of literature/ references
9. Proper references to literature
Max 10 pages – excluding illustrations
Mark /40%

MGT4998 – INTERNATIONAL BUSINESS PROJECT (MSME)Chap2:MethodologyandPreparation
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 needs
2. 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 material
2. Availability of finalized interview questions
3. Availability of an detail solicitation action plan
4. Solicitation preparation and planning are deemed to be
comprehensive, detailed and well-conceived
5. 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-bias
7. Structured questions are deemed sufficient to gauge
characteristics of organization and characteristic of interviewee
Mark /50%

MGT4998 – INTERNATIONAL BUSINESS PROJECT (MSME)Chap3:AnalysisofFindingsandRecommendations
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 organization
2. Summary of interview findings
Prepare a table with the following headings
a) 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 yourfinding derived from interviews
c) Evidence – Evidence in the form of transcript with reference to exact time and audio file name, that
support or justify your findings
d) Strength – A form of numerical expression that indicates the level of dominant of your finding. Support
this numerical expression with a brief justification
3. Recommendation for mass survey phase
Prepare a table to document the following
a) Category – a brief overview that describe the category of your recommendation. Category must include
the following, but not limited to
i. 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 criterion
1. Submission of raw audio files, one for each interview, in mp4 format
2. Submission of filled Non-Disclosure forms signed by interviewee in pdf file
with proper filename
3. Availability of a table listing information deemed crucial and required for
public scrutiny
4. Characteristic of organizations interviewed is deemed to be diverse and not
uniform
5. Role and position of interviewee is deemed to be relevant to TC
investigation
6. Availability of additional intuitive illustrations that is deemed supportive in
justification of findings as well as recommendations
7. Finding is deemed to be insightful, non-bias and reveal new knowledge with
respect to TC practices
8. Recommendations is deemed to be detailed, insightful and greatly advances
development of subsequent phase ofmass survey
9. All justifications are deemed to be factual, non-bias logical and based on
interview findings
10. Minimum operational requirements
a) Member of 3 = 4 unique organizations
b) Member of 4 = 6 unique organizations
c) Member of 5 = 9 unique organizations
11. Extra credit for effort beyond min req as well as exceptional findings and
recommendations

GROUP 1 – FINAL REPORT I
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 Statistics.......................................43
3.3.2. Recommendations Execution ..................................................................................44
3.3.3. Justifications ...............................................................................................................45
Reference List...............................................................................................................................................47
Appendix........................................................................................................................................................51

GROUP 1 – FINAL REPORT 1
1.0. Chapter 1 – Background and Literature Review
1.1. Backgroundand ProjectDeliverables
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 AssociationMalaysia 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 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 ideasand 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. LiteratureReview 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 Credit
Source: 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 Region
Source: 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’sSMEs
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 SMEs
Source: 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 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).
Figure 5. The Direct Write-off Method
Source: O’neill (1999)
Figure 6. The Allowance Method
Source: O’neill (1999)

1.3. LiteratureReview on Terminologies
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 richard@han-jdql.com 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
Figure 8. Efendi's Timeline
Figure 9. Ellen Fredericia'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
16 June 2015 -
Find contacts
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 the company
17 June 2015 -
Arrange all
contacts list
found
18 June 2015 -
Distribute
emails to
entities
19 June 2015 -
Draft for call
script
21 June 2015 -
Check emails
and find other
potential
contacts

Figure 10. Herman Salim's Timeline
Figure 11. Sevin Alnovans's Timeline
16 June 2015
- Find
contacts of
SMEs
18 June 2015
- Design
solicitation
email
18 June 2015
- Distribute
emails to
entities
19 June 2015
- Email Dr
Karling for
more contacts
21 June 2015
- Recheck
email and call
script
16 June 2015 -
Find contacts
of SMEs
18 June 2015 -
Design initial
email
18 June 2015 -
Distribute
emails to
entities
19 June 2015 -
Done solicitation
e-mail
justification
21 June 2015 -
Distribute and
recheck emails

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
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
with the late payment or no payment?
To know the barriers in dealing with
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. Characteristicsof Intervieweesand Organizations
3.1.1. Detail of Interviewees
HOTO STAINLESS STEEL INDUSTRIES SDN. BHD.
Name of interviewee Mark Lim
Interview time 8.10 a.m. – 8.25 a.m.
Location Setia Alam Convention Centre
Interview Duration 06 minutes 13 seconds
Contact info 603-31761768
PAN MALAYSIA CAPITAL BERHAD
Name of interviewee Michael Oh Hong Choon
Contact info +6012-278 5560
ASCENDENT CERTIFICATION SDN. BHD.
Name of interviewee Lua Kheng Leong
SUPERSHO (M) SDN. BHD.
Name of interviewee Samuel Goh

MEDIA SPECIALISTS SDN. BHD.
Name of interviewee Lim Ai Lian
OPUS IT SERVICES SDN. BHD.
Name of interviewee William Toh
Contact info +6011-3709 3878
ABYRES SDN. BHD.
Name of interviewee Basheer Ali
FLAVOR INN CORPORATION SDN. BHD.
Name of interviewee William Arul

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
Administration
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/Partner
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. Summaryof 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 *Abbreviation
HSSI: Hoto Stainless Steel Industries Sdn. Bhd. - : Not Specified
PMC: Pan Malaysia Capital Berhad D : Depends
AC: 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 - 02:54
03:13
07:54
Average
Terms
02:10 03:01 01:31
02:31
01:30 01:17 00:59 03:43 04:28
05:29
Average
Delay
- - - - - 05:32 - -
Discount 01:32 01:33 02:04 02:31 04:04 01:22 02:24 05:44
Penalty - - 03:48 03:22
03:44
04:10 01:38 06:00 11:35
Late/no
payment
04:13 04:09 03:25 06:11
06:22
05:06
07:55
11:43
00:41
01:38
05:58
05:06 10:34
11:19
Management 05:06 05:33 04:06 07:08 09:45
14:05
03:45
04:00
- 11:10
12:48
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 SurveyPhase
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/Madam
Re: PERMISSION TO CONDUCT AN INTERVIEW REGARDING TO INTI’s PROJECT
Hello, 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!

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