International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Determinants of Working Capital Management Practices in Small and Medium Enterprises in Nairobi
Jean Paul Ndagijimana, Timothy C. Okech

Governments in collaboration with sectoral stakeholders have over the years continued to support small and medium enterprises (SMEs) as part of initiatives aimed at poverty alleviation, wealth and employment creation. In Kenya, the government of Kenya continues to strengthen the development of the sector including training in financial management. The purpose of this study was to investigate the factors affecting working capital management practice in small and medium enterprises in Nairobi, Kenya by specifically examining how the management of accounts receivables and payables, and the cash conversion cycles affect working capital management practice in these enterprises. Using descriptive research design, both primary and secondary data was collected from SMEs in Nairobi registered with the Federation of Small and Micro Enterprises and analysed to obtain both descriptive and inferential statistics. The study revealed positive significant relationship between accounts receivable, accounts payable and cash conversion, and working capital management practices in the enterprises. Similarly, a large majority reported acquiring in puts and selling output on credit with payments ranging from two weeks to even four months which however, affected the cash flow of the enterprises and consequently their ability to honor their financial obligations. Finally, a large majority obtained their finances from banks, micro-finance institutions, as well as shy-locks to boost their businesses unfortunately they ended up charging very high interests. In the end many enterprises could not repay the money on time while others could not afford to pay back thereby closing shop. It was recommended that SMEs need to balance between credit sales and cash sales so as to avoid running into a cash trap position; entrepreneurs need to be equipped with necessary financial management skills to effectively enhance their ability manage accounts payables and receivables efficiently to avoid the challenges that are likely to emanate from overreliance on debts. Necessary regulatory mechanisms need to be put in place governing credit facilities to ensure full disclosure of the information while at the same time cap interest chargeable.

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