Effect of Working Capital Management Practices on Profitability of Small and Medium Enterprises in Makueni County

Abstract

The purpose of this study is to examine the influence of Working Capital Management practices (cash conversion cycle, inventory holding period, account receivable collection period and accounts payable period) on the profitability of Small and Medium size Enterprises (SMEs) in Makueni County. The purpose was achieved by conducting a descriptive survey research design based on the views of managers drawn from a final sample of 71 SMEs from Wote town. Findings indicate that cash conversion cycle, inventory-holding period and accounts payable period have significant positive effect on profitability of SMEs. On the contrary, results indicate that there exists a negative relationship between accounts receivable period and profitability of SMEs. The results suggest that SMEs in Makueni should strive to improve cash conversion cycle, inventory holding period, accounts receivable collection period and accounts payable period to enhance their efficiency. The financial institutions are called upon to offer more trainings to SMEs on effective working capital management practices before giving a loan facility. The finding is also in handy to the government and other policy makers to guide the development of policies geared towards improvement of SMEs sector since it is a key contributor to the Gross Domestic Product of the country. Specifically, the government should come up with training programs that can improve the business management skills of the SMEs owners.