Attributes and impact of advance payment system on cash flow, project and organisational performance

Abstract

Purpose Construction companies require meticulous and thorough financial planning to ensure business survival in an increasingly competitive global market. Past studies assert that cash flow management is also crucial to meeting project and organisational performance expectations. However, the link between an advance payment system (APS), cash flow and project performance has hitherto received scant academic attention. Therefore, this study aims to investigate the attributes and impact of APS on cash flow, project and organisational performance. This study surveyed all registered contractors listed in Grades 1–9 on the Construction Industry Development Board Register of Contractors in South Africa. Design/methodology/approach This study adopted an empirical epistemological design and deductive reasoning to analyse primary data collated via a questionnaire data collection instrument. Summary statistical and regression analysis were used to explore data garnered. Findings This study found that key significant attributes of APS in South Africa were payment of balance to the contractor upon project delivery; advance payment to contractors before the commencement of the work; and payment to contractors as agreed. This study proffers that project performance in terms of cost, time and quality performance is highly and positively supported by APS. Moreover, APS positively supports the efficiency, competitiveness and profitability of construction organisations. Cumulatively, these findings confirm that APS attributes in South Africa conforms to the global attributes of APS. The research concludes that client use of APS on projects improves the likelihood of attaining improved quality and time performance. This paper concludes with a recommendation that both public and private clients consider the option of an APS as the ideal payment system to support project and organisational performance. Originality/value To the best of the authors’ knowledge, this work constitutes the first attempt to explore the linkages between an APS, cash flow and project performance in South Africa and seeks to engender wider polemic debate and further discussion among industry stakeholders.

Socio-political factors underlying the adoption of green bond financing of infrastructure projects: the case of Ghana

“…This study is underpinned by the positivist philosophical stance (Saunders et al, 2015;Edwards et al, 2019). Positivism is an epistemological stance which is linked to the philosophical position of the natural scientist and includes dealing with observable social reality to develop law-like generalisations (Omopariola et al, 2021). Positivists employ deductive, structured, large samples, measurement and typically adopt quantitative methods (Saunders et al, 2015).…”

“…, 2019). Positivism is an epistemological stance which is linked to the philosophical position of the natural scientist and includes dealing with observable social reality to develop law-like generalisations (Omopariola et al. , 2021).…”

Modelling the Implications of Delayed Payments on Contractors’ Cashflows on Infrastructure Projects

“…This strategy is essential as the injection of financing at set intervals enables the ongoing advancement of a construction project in the form of material and labour expenditures, culminating in timely project delivery. Still the phenomena of delayed payments, and cash flows from client to contractors, do not possess a simple solution of paying on time at set intervals [5]. The challenges associated with obtaining continuous project finances are a global concern and impede project completion by placing undue financial strain on contractors and project stakeholders.…”

Modelling the domino effect of advance payment system on project cash flow and organisational performance

“…However, different payment systems apply to different project environments and expectations given that each construction project is bespoke in terms of the project's specifications and procurement arrangement (the so-called 'project environment') (Omopariola and Windapo, 2018). Omopariola and Windapo (2018) posit that construction projects fail to deliver as expected due to a mismatch between payments systems used on a project environment. Scott and Mitchell (2017) proffer that when an appropriate payment method or system is used (and in the best-fit project environment), the effectiveness of that project and concomitant organisational performance will improve.…”

“…The study's conclusion (Omopariola and Windapo, 2019) was tentative and indicated that APS has no effect on project cash flow and the performance of organisations and projects. Also, Omopariola et al (2022) investigated the impact of attributes of an APS on cash flow, project and organisational performance. The study (Omopariola et al, 2022) concluded that APS serves as an effective payment system that can catalyse the performance of organisations and projects towards construction operations success.…”