CHAPTER ONE

1.0                                                 INTRODUCTION

1.1       Background to the Study

Cash flow is a series of income and expenditure over the life of an investment or

project. The difference between the income (revenue) and expenditure (disbursement) at

any point of time is term as net cash flow which could be either positive or negative

(Hoseini, Andalib and Gatmiri, 2015). A negative net cash flow means disbursements

are exceeding income which is a usual situation on even a highly profitable project

during the greater part of its duration (Al-Mohsin, Alnuaimi and Al-Tobi, 2014). A

positive cash flow is ultimately needed to generate profits, to pay employees’ salaries

and wages, taxes and servicing interest on borrow funds, materials, plant,

subcontractors’ accounts rendered and overheads expended during the progress of the

contract (Odeyinka, Kaka and Morledge, 2003). The main factors affecting cash flow in

a construction project is the widespread practice of delay and underpayment by the

clients, inaccurate Cash Flow Forecasts (CFF) and lack of efficiencies in monitoring

and controlling of construction cash flow (Hoseini, Andalib and Gatmiri, 2015).

Cash flow management is a general process of planning, forecasting, manipulating and

controlling of cash flows either at the project or corporate level (Ross and Williams,

2013). Cash flow monitoring and controlling entails adequate planning of fund

utilisations, efficient monitoring of budget implementation and effective evaluation of

results (Richter and Cantoria, 2011).

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Construction sector recorded high rate of business failure globally with 20.1% and more

than 80% of these failure were attributed to lack of financial control (Emidafe, 2015).

The Nigerian construction sector which contributes about 70% of the country’s gross

domestic product (GDP) is one of the highest employer of labour, labour cost are indeed

a huge outlay for the contractors due to volume of manpower required to execute and

delivered construction projects. Poor cash flow management can result in; financial

improprieties, failure of the projects and business bankruptcy (Chukwudi and

Tobechukwu, 2014). Contractors operating in developing countries including Nigeria

were hugely affected by unprecedented financial difficulties in the wake of dwindling

economy. These difficulties are compounded by the time lag between contractor’s

expenses and payment collection, which impact negatively on the contractor’s cash flow

and in many cases result in failure of a project and business insolvency (Emidafe,

2015).

In an attempt to mitigate or alleviate the excessive rate of business failure within the

construction sector, several researches were carried out to improve cash flow

management of construction projects. And some of these researchers are; Mutti and

Hughes (2002) explored the cash flow issues associated with company failures. The

study revealed how cash flows are managed by various construction firms at the project

level in United Kingdom (UK).

Odeyinka, Kaka and Morledge (2003) identified and examined the various approaches