Abstract:
The purpose of this study was to find out the influence of working capital management
on financial performance of Small and Medium manufacturing Enterprises in Nairobi
County in Kenya.The research employed a survey design comprising of quantitative
data collection approach. The target population was 176 SMEs from manufacturing
sector. The study applied both probability and non probability sampling procedures to
obtain a sample of 121 SMEs required for the study. To achieve the objective of the
assessment, primary data was gathered using questionnaires. Secondary data was
gathered from past published scholarly articles explaining theoretical and empirical
information on the influence of working capital management on the financial
performance of SMEs growth in manufacturing sector. Inferential statistics such as
Pearson correlation coefficient was used to analyze quantitative data. Pearson
correlation coefficient was used to determine the relationship between working capital
management and financial performance. The probability value (P- value) was used to
test whether the calculated chi-square was significant or not..The findingsof the study
revealed that about 83.7 percent of SMEs rarely or sometimes prepare cash budgets,
and preparing and reviewing cash budgets are frequently based on monthly periods. At
the same time, 85.3 percent of responding SMEs sometimes and often have shortage
of cash while about 59.6 percent always and often have a surplus of cash.
Nevertheless, only 19 percent of SMEs deposit their cash surplus into bank accounts
while up to 58.9 percent of responding SMEs invested cash surplus for profit
purposes.The findings of receivable management practices of SMEs in the sample
revealed that51.3 percent of SMEs sometimes sell their products or services on credit
and 43.1 percent often set up credit policies for the customers. However, there are still
1.6 percent of SMEs that tend to sell on credit to anyone who wishes to buy. The
study revealed that 37.2 percentof SMEs review their levels of receivables and bad
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debts monthly. As a result, the percentage of bad debts is controllable and maintained
at a relatively low level.It was noted that 58.7 percent of responding firms
answeredthat they determine inventory level based on owner/manager’s experience
while 34.0 percent based on historical data. Approximately, 7.3 percent used theories
of inventory management Based on the above findings, the study recommends that the
government should be able to come up with good working capital management
policies to guide the SMEs in their working capital management in order to maximize
their returns. This is because proper working management practices are essential for
the success of SMEs in Kenya.
