Effects of Working Capital Management on the Performance of Small and Medium Enterprises in Nigeria

Abstract

Small and Medium Enterprises (SMEs) play a great role in providing employment and contribute towards the Gross Domestic Product (GDP) of Nigeria and any other Nation the world over. To achieve this feat, there is a need to properly manage the available financial resources. Working Capital Management which is one of the components of Financial Management is expected to play a role in this process. This study therefore examined the Effect of Working Capital Management on the performance of small and medium enterprises (SMEs) in Nigeria. The study was anchored on the research objectives which include establishing whether cash management, inventory management, accounts payable management and accounts receivable management affects the performance of SMEs in Nigeria and to what extent. It also examined whether financial institution intervention (moderating variable) have influence on the relationship between working capital management and performance of SMEs in Nigeria.The study used descriptive research survey and targeted 250 Small and Medium Enterprises (SMEs) in both Kaduna North and South Local Government Areas. Data were collected by the use of questionnaires and interview guides. The interview guides were used to supplement additional information, especially questions that needed follow ups. Data collected was analyzed using SPSS software.In order to examine the effect which Working Capital Management has on the Performance of the SMEs in the study area, Regression Models were then used. The results of the study indicated that all the components of Working Capital Management (cash management, inventory management, accounts payable management and accounts receivable management) affect the performance of Small and Medium Enterprises positively. Accounts payable policies were most prominent with correlation coefficient of 89.60% elements of working capital management affecting the performance of small and medium enterprises in Nigeria. The study also recommends that SMEs should among other things strive to shorten the cash conversion cycle, utilize the value of relationship with suppliers and develop strong alliance, seek knowledge on stock optimization techniques, introduce more and elaborate credit terms, Government at all levels to be more involved in financing micro-enterprises and financial institution such as commercial banks should also be ready to provide loan facilities to SMEs with less stringent conditionality.