Keywords: Cooperatives, working capital management,
current assets, current liabilities, net working capital, Philippines
Introduction
Cooperatives are gaining importance in the local and international
societies. They underwent developmental stages starting from addressing
social, economic and political issues to bringing significant growth and
sustainability in the society. In fact, they are serving as strong
catalysts in which they bring impact to social, political and economic
through a philosophically woven approach in doing business. They are
institutions whose members are working collectively and they are
motivated by strong self-reliance and social bond in order to meet their
needs together. The members’ self-reliance can be observed in their
ability to accumulate their savings and capital contributions in order
to meet expected business requirements and assets. Indeed it is a rigid
task for them to operate business since they rely on their pooled
resources. However, if the members and their leaders manifest their
collective efforts then they can probably attain their goals.
Yet cooperatives can rely on the collective efforts of their members,
doing business is challenging in terms of dealing with both internal and
external environment. Externally, they face competitions thus liquidity
is not guaranteed. Internally, it requires managers to deal with
sophisticated tasks that would require effective execution and
coordination of activities related to managing assets and liabilities
that are mainly focused on current assets and current liabilities. In
reality, the core of business is about working capital management (WCM)
that focuses on managing both current assets and liabilities. On the
other hand, non-current assets and non-current liabilities basically
support the working capital of cooperatives like storing and restocking
of inventories and cash as well as to continuously sustain the normal
business operating cycle.
Like any other businesses, cooperatives need to implement WCM and they
have to upgrade the proficiency of their leaders and managers. WCM plays
a significant role in the success or failure of any organization since
it affects their liquidity, growth and profitability. Implementation of
WCM allows the firm to generate cash and minimize their cost while
ignoring it could negatively impact the firm’s liquidity risk and
operating performance (Kroflin &Kratz, 2015). In the finance’
perspective, liquidity is about maintaining revolving cash in which
inventories needs to be converted into cash for them to meet recurring
expenses and repay their maturing debts. Growth can also be attained by
cooperatives if they can sell their inventories at reasonable mark-ups
thereby they can procure more inventories in the future. Profitability
also goes with selling and restocking of inventories. WCM is also a
method of ensuring accuracy and control of current assets and
liabilities (Bragg, 2012). By implementing WCM policies, the managers
are guided and internal control can be implemented in every type current
assets and liabilities. Members will also have means of rechecking the
activities of their leaders and managers whether they are working in the
best interest of the members.
The study intends to assess the WCM of cooperatives in the Philippines
since they are being viewed by the country as important institutions
that can contribute to the economic growth of the citizens. In fact, the
government through its agency, the Cooperative Development Authority
(CDA), encourages their creation since they are viable partners in
bringing social and economic justice. As defined by law (e.g. RA 9520),
cooperatives are recognized as autonomous institutions that are
registered and created with common bond of interest, who voluntarily
joined together to achieve their social, economic and cultural needs and
aspirations. In order to operate, the make equitable contributions to
the capital required, patronizing their products and services and
accepting a fair share of the risks and benefits of the business in
accordance with the universally accepted principles of cooperatives. In
as much as the Philippine government sees the importance of
cooperatives, there is still a necessity to ensure that cooperatives
adopt appropriate WCM policies and procedures in order for them to
realize the governments’ vision for them and most importantly is to let
cooperatives attain their collective aspirations.
Cooperative studies in the Philippines are in fact limited. Studies are
focused on their current and historical statuses. Additionally, this
study utilized a survey-method that directly assesses the WCM of
cooperatives as compared with studies that utilized financial ratios
generated from financial statements. Financial statements reflect the
end-result of the management’s activities while survey-method allows us
to understand internal information that occurs on a daily basis. Most
often, information is only shared within the cooperatives and problems
are resolved internally and there are few reliable references that
cooperatives can access in order to improve their business operation.
This study considers the case the Municipality of La Trinidad in the
Philippines because their developments and their growth in number are
remarkable. Their lines of businesses are also noteworthy because they
were established to address and support communal needs. They are engage
in financial intermediation, agriculture, horticulture, water refilling,
organic farming, home-based bakery, transport, merchandising,
manufacturing, utilities, services and multi-purpose cooperatives. The
municipal local government unit have provided avenues for some of these
cooperatives like putting up trading-posts and marketing sites to help
out cooperatives.
Although the research is limited in a municipality, the study can bring
impact to cooperatives. This paper aims to:
- Awaken consciousness of managers on the importance of implementing
WCM;
- Contribute in the attainment of the Philippine government’ aspirations
about cooperatives; and
- Determine the level of implementation of WCM among cooperatives that
could influence not only those cooperatives involve in the study but
also those cooperatives with similar situations regardless of their
geographic areas.
To meet the aims of this paper, the study explores the implementation of
WCM in terms of: (1) current asset management along cash, receivables
and inventory; (2) current liabilities management along accounts
payable, trade payable and short-term loans; and (3) net working capital
management along investment policies and liquidity management.