EFFECT OF WORKING CAPITAL MANAGEMENT PRACTICES ON FINANCIAL

PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA

A CASE STUDY OF BANSI WHOLESALERS MIGORI COUNTY

CYTHIA MUTHONI WAHOME

DHT/805/23

A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF BUSINESS

MANAGEMENT SCHOOL OF BUSINESS AND ECONOMICS IN PARTIAL
FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION (ACCOUNTING) OF
KIRIRI WOMENS UNIVERSITY OF SCIENCE AND TECHNOLOGY

AUGUST, 2024
DECLARATION

This research project is my original work and has not been presented to Kiriri Women's
University of Science and Technology or any other institution of higher learning for
academic purposes.

CYTHIA MUTHONI WAHOME

DHT/805/23

Signature......................... Date ...................

Declaration by supervisor

This research project has been submitted for examination with my approval as the university
supervisor.

Signature ................................. Date.......................

Dr. CPA Edward Wasike PHD

ii
DEDICATION

This project is dedicated to my family and friends and especially my dad and mum, who
encouraged me in my quest till the end. I am forever grateful.

ACKNOWLEDGEMENT

I acknowledge the Most High God for the far he has brought me and for giving me the
strength and knowledge to complete my project. I also acknowledge my supervisor Dr.
Edward Wasike for the support and insights he gave me throughout my research.

iii
TABLE OF CONTENTS

DECLARATION ii

DEDICATION iii

ACKNOWLEDGEMENT iv

TABLE OF CONTENTS v

LIST OF FIGURES ix

iv
LIST OF TABLES x

ACRONYMS/ ABREVIATIONS xi

ABSTRACT xii

CHAPTER ONE 1

INTRODUCTION 1

1.1 Background of the Study 1

1.1.1 Global perspective 1

1.1.2 Regional perspective 1

1.2 Statement of the problem 1

1.3 General objective 2

1.4 Specific objectives 2

1.5 Research Questions 2

1.6 Scope of the Study 3

1.7 Justification of the study 3

1.8 Limitations of the study 3

CHAPTER TWO 4

LITERATURE REVIEW 4

2.0 Introduction 4

2.1Theoretical review 4

2.1.1 Modern portfolio theory4

2.1.2 Trade-off Theory 4

2.2 Empirical review 5

2.2.1 Cash Management 5

2.2.3 Accounts Receivables 5

2.3 Conceptual framework 6

2.4 Critique of literature 7

v
2.5 Summary of literature 7

2.6 Research gaps 7

CHAPTER THREE 9

RESEARCH METHODOLOGY 9

3.0 Introduction 9

3.1 Research design 9

3.2 Target population 9

3.3 Sample size 10

3.4 Research Instruments 11

3.5 Data Collections 11

3.6 Pilot test 12

3.6.1 Reliability Test 12

3.6.2 Validity Test 12

CHAPTER FOUR 13

RESEARCH FINDING PRESENTATION AND DISCUSSION 13

4.1 Introduction 13

4.2 Demographic information13

4.2.1 Age of respondents 13

4.2.2 Education level of respondents 14

4.2.3 Work experience 14

4.3 Response rate 14

4.4 Findings as per objectives15

4.4.1 Effect of accounts receivables on the financial performance of smes in Kenya 15

4.4.2 Effect of Inventory management on the financial performance of smes in Kenya 16

4.4.3 Effects of cash management on the financial performance of banks in Kenya 17

4.5 Discussions as per objectives 18

vi
4.5.1 Effect of accounts receivables on financial performance of Smes 18

4.5.2Effect of inventory management on financial performance of Smes 19

4.5.3 Effect of cash management on financial performance of Smes19

4.6 Summary of findings and discussions 19

4.6.1 Accounts receivables 19

4.6.2 Inventory management 19

_Toc173163789

4.6.3 Cash management 20

CHAPTER FIVE 21

SUMMARY, CONCLUSIONAND RECOMMENDATIONS 21

5.1 Introduction 21

5.2 Conclusions as per objectives 21

5.2.1 Accounts receivables 21

5.2.2 Inventory management 21

5.2.3 Cash management 21

5.3 Recommendations as per objectives 22

5.3.1 Effect of accounts receivables on financial performance 22

5.3.2 Effect of inventory management on financial performance 22

5.3.3 Effect of cash management on financial performance 22

REFERENCES 23

APPENDICES 25

APPENDIX 1: INTRODUCTION LETTER 25

APPENDIX II: QUESTIONNAIRE 26

vii
LIST OF FIGURES

Figure 2.1 Conceptual Framework..............................................................................6

viii
LIST OF TABLES

Table 2.1 Conceptual Framework ……………………………………………………….……6

Table 3.1 Target Population …………………………………………………………..…….10

Table 3.2 Sample Size ……………………………………………………………………….10

Table 4.1 Age Of Respondents…………………………………………..…………………..13

Table 4.2 Education Level of Respondents ………………………………….…….………..14

Table 4.3 Work Experience…………………………………………………………………..14

Table 4.4 Response Rate…………………………………………………………….....…….15

Table 4.5 Findings As Per Objectives…………………………………………...……..…….15

Table 4.6 Inventory Management……………………………………………………………16

Table 4.7 Cash Management………………………………………………………....………17

ACRONYMS/ ABREVIATIONS

SME - Small and medium enterprises

WCM - working capital management

ix
CCC - cash conversion cycle

NTC - Net trade cycle

JIT - just- in -time

ABSTRACT

The study examined how working capital management practices impact the financial
performance of SMEs in Kenya, focusing on Bansi wholesalers in Migori town. The
objectives were to determine the effect of accounts receivables, inventory management, and
cash management on the financial performance of SMEs in Kenya. Data was gathered
through questionnaires and trade reports from Migori County. A total of 51 participants,
including wholesale owners, managers, and staff from SMEs in Migori town market, were
surveyed. Descriptive statistics were used for data analysis, which was then presented in
tables, graphs, and charts. The findings indicated that SMEs managed their working capital
through cash, receivables, and inventory management. Many SMEs faced cash flow issues,

x
with significant amounts of cash tied up in debts and minimal savings. A positive relationship
was found between cash management and financial performance. The study also revealed that
SMEs extended credit to their customers and that effective trade receivable management
improved financial performance. Additionally, SMEs maintained various inventories, but
records related to inventory management were limited. A strong positive relationship was
noted between inventory management and financial performance. The study concluded that
working capital management is crucial for the financial success of SMEs. Recommendations
included reducing the number of trade receivables, improving receivable management,
regulating cash needs, and implementing a robust inventory record system.

xi
CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Background of the study covers the global perspectives, regional perspectives, and local
perspective

1.1.1 Global perspective

Working capital management is very essential for businesses in the whole world, hence
impacting liquidity and profitability.

1.1.2 Regional perspective

In the whole sub Saharan Africa and Kenya included, SME's face a number of challenges in
managing their working capital effectively because of issues like economic factors and
market conditions.

1.1.3 Local perspective

In Kenya, SME's are significant contributors to the country's economy but struggle with cash
flow management and efficient working capital practices.

1.2 Statement of the problem

Good financial performance is a core target for all firms whether small-scale or big. Financial
performance is when a firm is able to meet its current and future cash and non-cash financial
needs without hardships .However, SMEs still struggle both interms of working capital
management, financial performance and growth. Instead of expanding to large ventures,
SMEs in Kenya have kept struggling in their finances; performance and majority have
subsequently closed business. Working capital management techniques are adopted by
organizations to ensure effective investment of cash, achieve profitability be successful in
financial performance. Efficient Working Capital management does not only prevent
bankruptcy but also improves profitability, cash flow and returns per capital invest
(Wanyungu, 2014).

Despite a number of efforts to uplift their working capital management,80% to 90% of SMEs
still fail within 5-10 years due to financial challenges (Ahmad et al., 2011), and Kenya is not
exceptional SMEs continue to perform properly including those operating in Migori town
Market.Migori town Traders Association report states that many SMEs have closed up
business and others are still struggling to maintain their financial stability. This leaves an
information gap regarding the effect of proper working capital management on the financial
position of SMEs in Migori town Market that has not been addressed by recent research.
Owing to this gap, this study focused on examining the effect of working capital management
practices on the financial performance of small and medium enterprises in Kenya

1.3 General objective

1
The study aimed at examining the effect of working capital management practices on the
financial performance of SMEs in Kenya taking wholesalers in Migori town market as a case.

1.4 Specific objectives

i To evaluate the effect of accounts receivables on financial performance of SMEs in Kenya.

ii To assess the effect of inventory management on financial performance of SMEs in Kenya.

iii To evaluate the effect of cash management on financial performance of SMEs in Kenya.

1.5 Research Questions

The study sought to address the following research questions

i What is the effect of accounts recievables on financial performance of SMEsin Kenya?

ii What is the effect of inventory management on financial performance of SMEs inKenya?

iii What is the effect of cash management on financial performance of SMEs in Kenya?

2
1.6 Scope of the Study

The study focuses on various SMEs in Kenya across various sectors and explores both
qualitative and quantitative aspects of working capital management.

1.7 Justification of the study

Understanding the impact of working capital management practices on SMEs financial

performance can provide insights for policy makers, financial institutions and SME owners to
improve financial stability and growth. Having this study conducted in Migori county and
some reports from the county trade reports, the study can help the county government in
creating more job opportunities for the members of Migori county.

1.8 Limitations of the study

This study is limited to wholesalers in Migori town market and the findings may not be
generalizable to other organisations in the public sector in Kenya.The study is also limited to
availability and reliability of data on SME's.Additionally, the study is limited by he
researcher's assumptions which may influence the interpretation of the findings.

3
CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents views, ideas, and literature of different scholars in regard to the
working capital management and financial performance of SMEs. The literature was
presented and organized according to study objectives.

2.1Theoretical review

The theoretical review covers the following theories which are relevant for the study.

2.1.1 Modern portfolio theory

This study was conducted in line with the modern portfolio theory, as first developed by
Harry Markowitz. It postulates that a firm should pay attention to key areas in which it
invests in order to maximize its portfolio and return its risk through allocating amounts to
various assets and performance units. This theory bases on the fact that firms should allow for
proper collection of both types of assets so as to lower different financial risks and enhance
financial performance.

2.1.2 Trade-off Theory

This theory was developed by Franco Modigliani and Merton Miller in the 1950’s. It suggests
that SMEs face a trade-off between liquidity and profitability when managing their working
capital. Efficient management aims to strike a balance where liquidity is maintained without
compromising profitability. This theory has been used in this study to investigate how
different components of working capital (such as accounts receivable, inventory, and
accounts payable) affect this balance.

4
2.2 Empirical review

2.2.1 Cash Management

Effective cash management is crucial for SMEs in Kenya as it directly impacts their liquidity
and ability to meet short-term obligations. According to a study by Muriithi and Mukulu
(2017), optimizing the cash conversion cycle (CCC), maintaining adequate cash reserves, and
implementing robust cash flow forecasting techniques can significantly enhance financial
performance. SMEs that effectively manage their cash flows are better positioned to seize
growth opportunities, manage operational expenses efficiently, and mitigate financial risks
associated with cash shortages (Muriithi & Mukulu, 2017). However, challenges such as
limited access to financing and unpredictable cash inflows often hinder optimal cash
management practices among SMEs in Kenya, necessitating tailored strategies to improve
liquidity management and overall financial health (Muriithi & Mukulu, 2017; Ayieko &
Tarus, 2020)

2.2.2 Inventory Management

Inventory management practices among SMEs in Kenya play a pivotal role in balancing
operational efficiency and financial performance. Effective inventory control systems, such
as Just-in-Time (JIT) and ABC analysis, can help minimize carrying costs, reduce stockouts,
and improve cash flow utilization (Ochieng et al., 2018). Studies indicate that optimizing
inventory turnover ratios and adopting technology-driven inventory tracking systems are
associated with enhanced profitability and operational efficiency for SMEs (Ochieng et al.,
2018; Mwirigi & Mwenda, 2019). Nevertheless, challenges such as inadequate infrastructure,
supply chain disruptions, and fluctuating customer demand pose significant obstacles to
achieving optimal inventory management practices in the Kenyan SME sector, highlighting
the need for adaptive strategies tailored to local market conditions (Mwirigi & Mwenda,
2019; Ochieng et al., 2018).

2.2.3 Accounts Receivables

Efficient management of accounts receivables is critical for SMEs in Kenya to maintain

healthy cash flows and sustain long-term profitability. Implementing clear credit policies,
conducting regular credit assessments, and promptly following up on overdue payments can
reduce bad debt expenses and enhance liquidity management (Ongore & Kusa, 2013). Studies
suggest that reducing the average collection period and improving receivables turnover ratios
positively impact financial performance indicators such as cash flow stability and working
capital efficiency (Ongore & Kusa, 2013; Ayieko & Tarus, 2020). However, challenges such
as delayed payments from customers, limited access to creditinformation, and economic
uncertainties necessitate proactive measures to strengthen accountsreceivables management
practices among Kenyan SMEs (Ayieko & Tarus, 2020). Developing robust debtor
management strategies and leveraging digital payment solutions are essential steps to
mitigate these challenges and optimize financial performance in the competitive SME
landscape of Kenya (Ongore & Kusa, 2013; Ayieko & Tarus, 2020)

2.3 Conceptual framework

5
A conceptual framework is key to development as it shows the relationship between two
concepts in a study. This research aims to show the effect of working capital management
practices on the financial performance of SMEs in Kenya. The relationship is shown below

Table 2.1 Conceptual framework

Author (2024)

Independent Variables Dependent Variables

Accounts receivables

 Credit policy Financial performance

 Receivables turn over ratio
 Collection period  Profitability
 liquidity
Inventory management

 Inventory accuracy
 Just-in-time practices
 Carrying costs

Cash management

 Cash budgeting
 Cash fraud
 Cash surplus

Author (2024)

2.4 Critique of literature

Analyzing the literature on the effect of working capital management (WCM) practices on
the financial performance of SMEs reveals several key insights and areas of critique: One
prominent observation is the diversity in methodologies used across studies. Some research
employs quantitative techniques, such as regression analysis, to establish causal relationships
between WCM practices and financial performance metrics like profitability and liquidity
ratios. However, there is also a presence of qualitative studies that delve into the qualitative
aspects of WCM practices, such as managerial perceptions and decision-making processes.
Also, While many studies utilize established frameworks like the Cash Conversion Cycle
(CCC) and the Net Trade Cycle (NTC) to measure WCM efficiency, others develop their
own conceptual models. This diversity can lead to challenges in comparing findings across
studies and may affect the generalizability of results..

2.5 Summary of literature

This study was conducted on Bansi wholesalers operating their activities in Migori town
Market, Migori county. The study involved wholesale owners and employees working in
various wholesales. Most wholesales were owned by males and had few employees. The
6
information obtained was summarized according to objectives as noted: Cash management,
inventory management and accounts receivables.

2.6 Research gaps

Causal Relationships: While many studies establish correlations, more research is needed to
establish causality between specific working capital management practices (e.g., cash
conversion cycle, accounts receivable/payable management) and financial performance
metrics (e.g., profitability, liquidity).

Comparative Analysis: There is a lack of comparative analysis between SMEs and larger
firms regarding the impact of working capital management practices. Understanding how
these practices differ in effectiveness and implementation could provide valuable insights.

Impact of Technological Advancements: With the advent of new technologies (e.g., fintech
solutions, AI in finance), there is a need to investigate how these innovations influence
working capital management practices and subsequently SMEs' financial performance.
Addressing these gaps could enhance the understanding of how working capital management
practices can be optimized to improve the financial performance of SMEs in diverse
economic environments and industries.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter presents the research design, area of study, study population, sample size, target
population and data collection methods. This chapter consists of quality control methods, data
management and processing, ethical considerations.

3.1 Research design

The researcher used a descriptive design A descriptive design is a type of study design that
aims to describe characteristics of a population or phenomenon being studied. It focuses on
answering questions like "what,""who,""where," and "when." This type of design is useful
when researchers want to gather data about the current state of affairs or the prevalence of
certain phenomena. Descriptive studies do not seek to establish relationships between
variables or determine causality; instead, they provide a snapshot of the situation at a specific
point in time. Descriptive design was preferred because it was viewed as key in providing an
in-depth investigation and analysis of the variables of the study in wider scope. To achieve
this, the study used quantitative approach to collect that data. Quantitative approaches involve
use of statistical tools to establish the relationship between variables (Oso & Onen 2009).
This approach assisted to generate numerical information about working capital management
and financial performance.

3.2 Target population

Target population is a group of individuals, objects or items from which samples are taken for
measurement or involvement in the study (Kombo & Tromp, 2009). The study population
was drawn from Owners, Management and staff of wholesalers in Migori town Market.By
March, 2017 registered wholesale businesses were 51 and all these constituted the study
population. Wholesales were considered because they are the minority SMEs in Migori town
Market. The data was gotten from the Migori county government trade reports.

8
Table 3.1 Target population

Author (2024)

Category Frequency

Wholesale owners 5

Management 10

Staff 36

Total 51

3.3 Sample size

A sample is a proportion of the population that has been selected for the study
(Trochim,2014). A sample of 51 respondents was selected for the study.

n= N/(1+Ne²)

n=51/1+51(0.05)²

n=51/1+51(0.0025)

n= 51/1.525

n= 45

Table 3.2 sample size

9
 RESPONDENTS Population Sample size Sampling technique

Wholesale Owners 5 5 Purposive

Management 10 10 Simple random sampling

Staff 36 30

Total 51 45

Author (2024)

Purposive sampling; This is where the researcher selected respondents whom he/she believed
were key informants and have direct information about the topic of study. In this study,
SMEs owner were purposively selected because they had key information about the working
capital management and financial performance of their businesses.

Simple random sampling technique; This was used to select the staff of retail SMEs that are
part of the study. Simple random sampling used provided a chance to employees to give their
views about the working capital management and financial performance of the businesses
they work in. Choice and use of these techniques provided the study with comprehensive and
representative information.

3.4 Research Instruments

This section outlines the procedure he researcher to ensure the results were valid and reliable.
It is a machine that is use to collect information in a proper and scientific manner in order to
achieve the research objective.

A survey instruments are commonly used to analyze data linked to your objectives. These
techniques are mostly commonly used to assess patients, clients, students, teachers and staff
with in health sciences, disciplines such as sociology and education. Questionnaire and
survey were employed as a researcher tool in this study. A series of questions were used to
elicit valuable information from responders.

3.5 Data Collections

Once the questionnaire was ready, permission from the ministry of education to collect data
was obtained. An introductory letter from kiriri womens university of science and technology
was obtained to assure the respondents that the information they gave would be treated
confidentially and would be used purely for research purposes when doing actual data
collection. The researcher utilized the networks to persuade targeted respondents to fill up
and return the questionnaires to ensure a high response rate. The researcher also encouraged
the respondents to participate without holding back the information that they had, a the
research instruments will not bare their names. The questionnaires were administered through
10
drop and pick method.

3.6 Pilot test

To conduct a single research, a set of questionnaires were distributed to a small sample of

respondents at Migori town market . This was done because questions which does not make
some to volunteer or flows with question that could lead to biased replies are detected during
evaluating a pilot test. It is critical to evaluate survey questionnaires before utilizing them to
gather data.

The sample number of employees in Migori town market were 20 and the researcher manage
to do pilot test of 10 employees.

3.6.1 Reliability Test

Reproducibility refers to the extent to which a research approach delivers consistent results or
data after multiple trials. Possible errors, deviation from a true number due to conditions that
now researcher has failed to address, has an effect on accuracy. Errors may occur as a result
of responder receiving inadequate instruments is trustworthy if it can measure a property
early and accurately throughout time to produce efficiency in the same manner.

3.6.2 Validity Test

The acceptability purposefulness and utility of deductions employed by the respondents

based on the data are referred to as validity. As suitable interpolation, is one which is
appropriate towards the study's goal, whereas a useful assumption in one that explains the
significance of the data gathered through other use of an equipment? The assessment finding
should provide useful information concerning the study issues to variables under
consideration. Information validity, criteria- related validity and composite reliability are the
three categories of validity (Mugenda and Mugenda 2017), when a question evaluates what
something promises to measure it is said to be valid. The researcher also reviewed the tools
and compared them to a set of targets to ensure they contained all the information that would
answer the questions asked and address the targets. The supervisor was also consulted to
verify the relevance of the questionnaire items compared to the stated aims of the study.

CHAPTER FOUR

RESEARCH FINDING PRESENTATION AND DISCUSSION

4.1 Introduction

This chapter presents the findings attained during the study on the effect of working capital
management and financial performance of SMEs. Findings were obtained from Retail SMEs
operating in Migori town Market and Migori county trade reports. Data on the effect of cash
management on financial performance of SMEs in kenya, effect of receivables management
on financial performance of SMEs in kenya and also on the effect of inventory management
on financial performance of SMEs in kenya was examined. The findings include descriptive
and inferential statistics.

4.2 Demographic information

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The study analyzed the age, educational level and employees period of service as shown
below.

4.2.1 Age of respondents

Table 4.1 Age of respondents

Age bracket Frequency Percentage

18-24 years 10 25

25-32 years 12 30

33-40 years 14 35

Above 40 years 4 10

Author (2024)

On age distribution, majority of the respondents (35%) were in the age bracket of 33-40
years. Another (30%) of the respondents were between 25-32 years of age, while (25%) were
aged 18-24 and a minority of (10%) were aged above 40 years.

4.2.2 Education level of respondents

The fesults from educational level showed that 40% had a bachelors degree, 30% had a
diploma certificate, 25% had certificate and 5% had a certificate of secondary education.

Table 4.2 Education level of respondents

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 Level of Frequency Percentage
education

Bachelors 17 40
degree

Diploma 11 30

Certificate 7 25

certificate of 5 5
seconady
education

Author (2024)

4.2.3 Work experience

Table 4.3 Work experience

work experience percentage

Below 5 years 25%

Over 5 years and below 10 years 60%

Above 10 years 15%

Author (2024)

4.3 Response rate

The respondents were required to indicate their gender category. This was sought in view of
ensuring fair engagement of male and female respondents. The majority of the respondents
55% were males while 45% were femlaes. Though the study was dominated byb male, the
ratio however depicts fair involvement of both genders, signifying that findings of this study
were unlikely to suffer from gender biasness.

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Table 4.4 Response rate

GENDER TOTAL PERCENTAGE

Male 26 55%

Female 14 45%

Author (2024)

4.4 Findings as per objectives

4.4.1 Effect of accounts receivables on the financial performance of smes in Kenya

Table 4.5 Findings as per objectives

14
 strongly Disagree Neutral Agree strongly
disagree agree

Quality 1 3 6 17 12
policy on
credit
enhances
financial
performance

Quality 2 5 6 10 17
policies on
turnover
ratios
enhance
financial
performance

Quality 1 4 7 12 10
policies on
collection
period
enhances
financial
performance

Author (2024)

4.4.2 Effect of Inventory management on the financial performance of smes in Kenya

Descriptive statistics for inventory management as generated and the results were as
turbulated.

Table 4.6 of Inventory management

Author (2024)

15
 strongly disagree neutra agree strongly
disagree agree

Just-in-time 1 7 3 18 11
practices
helps in
inventory
management
hence
financial
performance

Inventory 2 3 5 11 10
tracking
system
enhances
financial
performance

Quality 2 3 16 9 10
practices on
carrying costs
enhances
financial
performance

4.4.3 Effects of cash management on the financial performance of banks in Kenya

Table 4.7 cash management

Author (2024)

16
 strongly disagree neutral agree strongly
disagree agree

Quality 1 2 4 13 20
policies on
cash fraud
enhance
financial
performance

Quality 2 2 6 11 19
policies on
cash surplus
enhance
financial
performance

Quality 1 2 4 12 21
policies on
cash
budgeting
enhance
financial
performance

4.5 Discussions as per objectives

This section presents a descriptive analysis of the independent variables (cash management,
inventory management, accounts payables) of the study.

4.5.1 Effect of accounts receivables on financial performance of Smes

The study generated a descriptive statistics table. The findings were as follows, 17

Respondents agreed that quality policies on credit enhance financial performance, 17strongly
Agreed that quality policies on turnover ratios enhances financial performance and 16;
Respondents also strongly agreed to the statement that quality policies on collection period
enhances financial performance.

4.5.2Effect of inventory management on financial performance of Smes

17
Descriptive statistics for inventory management as generated and there suits were tabulated.
The table shows that majority (18) agreed to the statement that just-in-time practices helps in
inventory management and hence financial performance, 19 strongly agreed that quality
policies on tracking system enhances financial performance, and then 16 were neutral to the
fact that quality policies on carrying costs enhances financial performance of Smes.

4.5.3 Effect of cash management on financial performance of Smes

The study generated a descriptive statistics table on cash management, and the findings were
as follows; 20 respondents strongly agreed to the statement, quality policies on cash fraud
enhances financial performance of Smes, another 19 also agreed that quality policies on cash
surplus enhances financial performance and finally 21 strongly agreed that quality policies on
cash budgeting enhances financial performance of Smes.

4.6 Summary of findings and discussions

4.6.1 Accounts receivables

The study sought to determine the effect of accounts receivables on the financial performance
of Smes in Kenya. From the findings, the study generated a descriptive statistics table.17
respondents agreed that quality policies on credit enhances financial performance, 17 strongly
agreed that quality policies on turnover ratios enhances financial performance and16;
respondents also strongly agreed to the statement that quality policies on collection period
enhances financial performance.

4.6.2 Inventory management

The study sought to determine the effect of inventory management on the financial
performance of Smes in Kenya and the findings were, majority (18) agreed to the statement
that just-in-time practices helps in inventory management and hence financial performance,
19 strongly agreed that quality policies on tracking system enhances financial performance,
and then 16 were neutral to the fact that quality policies on carrying costs enhances financial
performance of Smes.

4.6.3 Cash management

The study sought to determine the effect of cash management on the financial performance of
Smes in Kenya and the findings were as follows; 20 respondents strongly agreed to the
statement, quality policies on cash fraud enhances financial performance of Smes, another 19
also agreed that quality policies on cash surplus enhances financial performance and finally
21 strongly agreed that quality policies on cash budgeting enhances financial performance of
Smes.

18
19
CHAPTER FIVE

SUMMARY, CONCLUSIONAND RECOMMENDATIONS

5.1 Introduction

This is the final chapter of the study. The chapter provides the conclusions of the major
findings of the study as per the objectives as shown in chapter four, and relates them to the
concepts and literature discussed in chapter two. It then highlights the recommendations
made thereof. It finally offers the suggestions for further research.

5.2 Conclusions as per objectives

5.2.1 Accounts receivables

The study found out that SMEs have traded both for cash and credit with their clients,
although there was no clear guideline on credit limit for their customers. This exposed them
to bad debts, which affected their working capital. The study established and concluded that
trade receivables management positively affected financial performance of SMEs in Kenya.

5.2.2 Inventory management

The study established that inventory was very important for success of any business SME’s
included because it was sold to generate profit. Different SME’s held different inventories in
line of their business and the study concluded that there was positive effect of inventory
management on the financial performance of SME’s in Kenya.

5.2.3 Cash management

The study concluded that most SME’s have cash related challenges and a few have formal
cash management practices. It was established and later on concluded that proper
implementation of cash management as a function of working capital management positively
affects financial performance of SME’s operating in Migori town market. The study finally
concluded that working capital examined through (cash, receivables and inventory aspects)
positive affected the level of financial performance of SME’s in terms of improving their
profitability, investment and liquidity levels.

5.3 Recommendations as per objectives

5.3.1 Effect of accounts receivables on financial performance

SMEs should ensure that they have good cash management practices, reduce on the number
of trade receivable and properly manage receivables, ensure that inventory management is
upheld since these positively affects the level of financial performance. In addition, the study
recommends that for better financial performance achievement, firms should examine and
improve their working capital management functions in general.

5.3.2 Effect of inventory management on financial performance

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The study further recommends that SMEs need to adopt and where possible have in place an
inventory record system, which can help them improve their working capital by having fast
moving inventory. There is need to improve on the quality of inventory held, the flow and
costs so as to improve the returns from the inventory held.

5.3.3 Effect of cash management on financial performance

The study recommend that SMEs should properly regulate their cash needs and put into effect
a function of better cash management. This requires having relevant books of accounts,
keeping money in investments, and other non-cash equivalents.

21
REFERENCES

ABOR, J.& BIEKPE, N.,2009, Small Business Financing Initiatives in Ghana, Problems and
perspectives in Management,4(3),69-77.

ABOR,D.&QUARTEY,F.,2010,Factors contributing to the Growth of Small Manufacturing

Firms Journal of Small Business management.

ABOR.,2014,Managing growth transitions: theoretical perspectives and research directions,

in handbook of entrepreneurship, Oxford: Blackwell.

AKIPOMI, H.,2010.Factors constraining the growth and survival of SMEs in Nigeria:

Implications for poverty alleviation . Management research review,34(1)

Aryeetey,E.,Baah-Nuakoh,A.,Duggleby,T.,Hettige,H.&Steel,F.,2014. Supply and Demand

for Finance of Small Scale Enterprises in Ghana”, Discussion paper no.251,World Bank,
Washington, DC.

ATRILL,P.,2013,FinancialManagementforDecisionMakers(4thEd.).London:Pearson
education ltd.

ATUKWATSE,D.,2004,Entrepreneurial teams and venture growth, in handbook of

entrepreneurship,(eds.),287-307.Oxford:Blackwell

Bobinski,B.,2016,FinancialManagement.SustainabilityHandbook.London:Earthscan

Bowen,G.Key,D.,Birley,S.&Stockley,J.,2009, Entrepreneurship: Acontextual perspective.

Lund: Sweden; Lund university press.

BUGAARI,A.,2008, Why most businesses in Uganda die infancy, The new

vision,September29,2008.Kampala.

COAD,D.,2007,Attitudestogrowthofsmallandmedium-sizedenterprisesandthe implications for

business advice. International Small Business Journal19(3),72-77.

DELOOF,M.,2013,Does Working Capital Management Affect Profitability ofBelgianFirms.

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APPENDICES

APPENDIX 1: INTRODUCTION LETTER

Dear respondent,

RE: ASSISTANCE TO COMPLETE QUESTIONNAIRE

I am a student at Kiriri Women’s University of Science and Technology conducting a

research study on the effect of working capital management practices on the financial
performance of small and medium enterprises (SME’s), a case of Bansi wholesalers in Migori
County.

The purpose of the questionnaire is to obtain the necessary information to successfully

complete the research data. In this regard, i am requesting you to provide the intended
information by filling the questionnaire attached herein. Confidentiality of the information
provided will be maintained and final report will be published to help in decision making. I
hope you will cooperate and i will thank you very much.

Thanks in advance.

APPENDIX II: QUESTIONNAIRE

SECTION A: Background data of respondents

1. Type of SME........................................................................

2. Category

A. Wholesale owner ( )

23
B. Management ( )

C. Staff ( )

3. Gender of respondent

A. Male ( )

B. Female ( )

4. How long have you been working in this business?

A. Below 1 year( )

B. Between 1-4 years( )

C. Between 5-9 years( )

D. Above 10years ( )

5. Indicate your education level

A. Certificate od secondary education ( )

B. certificate( )

C. Diploma ( )

D. Bachelors degree ( )

SECTION B: Working Capital practices and financial performance

In section B, the following scale will be used to answer the questions.

Tick the appropriate box basing on your level of area of use.

24
 S 1 2 3 4 5
c
a
l
e

P S D N A S
a t i e g tr
r r s u r o
t o a t e n
i n g r e g
c g r a l
u l e l y
l y e a
a g
r d r
s i e
s e
a
g
r
e
e

S/N Accounts receivables 1 2 3 4 5

A Quality policy on credit enhances financial

performance

B Quality policy on turnover ratios enhances

financial performance

C Quality policies on collection period

enhances financial performance

25
S/N Inventory management 1 2 3 4 5

A Just - in - time practices helps in inventory

management and hence financial
performance

B Inventory tracking system enhances

financial performance

C Quality policies on carrying costs enhances

financial performance

S/N Cash management 1 2 3 4 5

A Quality policies on cash fraud enhances

financial performance

B Quality policies on cash surplus enhances

financial performance

C Quality policies on cash budgeting

enhances financial performance

26