WORKING CAPITAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN GARISSA COUNTY, KENYA
Abstract
Small and medium-sized enterprises (SMEs) are pivotal to economic growth and development but often face persistent financial hurdles that threaten their sustainability. In Garissa County, Kenya, many SMEs encounter financial difficulties stemming from inefficient working capital management practices. This study examined how cash management impacts SME financial performance in the county, using descriptive and inferential statistics on data from 278 SMEs. Results revealed that inventory and accounts receivable management significantly enhance SME financial performance. Effective inventory management, characterized by systematic stock monitoring and control measures, as well as efficient accounts receivable practices, including streamlined credit policies and proactive debt collection, were associated with improved financial outcomes. In contrast, accounts payable management was found to negatively influence financial performance, highlighting the adverse effects of delays or inefficiencies in fulfilling payment obligations. Although cash flow management demonstrated a positive relationship with financial performance, its statistical insignificance underscored the need for enhanced liquidity management strategies. The study concluded that efficient working capital management practices are essential for bolstering the financial health of SMEs in Garissa County. It recommended that SME managers focus on optimizing inventory control, implementing robust debt recovery mechanisms, and refining cash flow management strategies. Additionally, policymakers were encouraged to promote financial literacy initiatives for SME owners and advocate for best practices in working capital management. These insights offer actionable strategies to address financial challenges and support sustainable growth for SMEs, benefiting entrepreneurs, researchers, and policymakers alike.
Key Words: Cash Management Techniques, Accounts Receivable Management, Inventory Management, Accounts Payable Management
CITATION: Abdiaziz, A. M., & Makori, D. (2025). Working capital management practices and financial performance of small and medium enterprises in Garissa County, Kenya. The Strategic Journal of Business & Change Management, 12 (2), 584 – 606. http://dx.doi.org/10.61426/sjbcm.v12i2.3231
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DOI: http://dx.doi.org/10.61426/sjbcm.v12i2.3230
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