Abstract:
Working capital can be considered as source of existence for all types of organizations, whether profit or nonprofit
organizations, therefore, it is a vital component for any profit making organizations for it influences
operational level and sales volume. The purpose of this study was to assess the influence of Working Capital
Management Practices on Financial Performance of SMEs in Machakos Sub-County, Kenya. This study was
based on these objectives: assessment of the influence of cash management practices on financial performance,
determination of the influence of receivables management practices on financial performance and the analysis of
the extent to which inventory management practices influences financial performance of SMEs. The study
adopted a cross-sectional survey research design which allowed the collection of primary quantitative data
through structured questionnaires and interview methods. The target population was 159 Owners / Managers of
SMEs trading in Machakos Sub-County. Random sampling technique was used to obtain a sample of 22 SMEs
trading in Machakos Sub-County. The data was analyzed using both descriptive and inferential statistics. The findings of the study revealed that; working capital management practices were low amongst the SMEs,
since majority had not adopted formal Working Capital Management Practices and there Financial Performance
was on a low average. The study further revealed that SMEs financial performance was positively related to
efficient cash management, efficient receivable management and efficient inventory management at 0.01
significance level. The coefficient of determination (R2
) indicated that 0.507 or 50.7% of the variables in F.P
could be explained by the changes ECM, ERM and EIM. This study concluded that WCMPs have an influence
on the F.P of SMEs; therefore, there is need for SMEs owners / managers to embrace EWCMPs as a strategy to
improve their F.P in order to survive in the turbulent business environment. This study corroborates extant
literature findings that established a positive relationship between WCMP and F.P
