Effect of Working Capital Management Practices on the Performance of Small and Medium Enterprises in Oyo State, Nigeria

Abstract

This study examined the effect of Working Capital Management (WCM) practices on the performance of Small and Medium Scale Enterprises (SMEs) in Oyo State, Nigeria. The relationship between cash management practices and the performance of SMEs was examined and the impacts of inventory and trade management practices on SMEs’ performance were also evaluated. The study was carried out on 150 SMEs operators who were selected using stratified random sampling method. Primary data were sourced with the aid of questionnaires. Data were analyzed using both descriptive and inferential tools such as Frequency counts, Percentages, Multiple Regression Analysis and Spearman Rank Correlation Coefficient. The result of the study showed positive relationship between SMEs’ performance and Cash management practices. Furthermore, inventory management practices had significant effect on SMEs performance as the variables; inventory shrinkage (t = -2.560, p<0.05), inventory investment (t = 1.922, p<0.05) and inventory turnover (t = 1.967, p<0.05) affected SME's performance significantly. Also, trade credit management practices impacted significantly on the performance of SMEs as the predictors; credit policy (t = 5.802, p<0.05), credit granting decision (t = 5.092, p<0.05) and credit debt collection (t = 5.118, p<0.05) were also significant. The study concluded that the efficiency and sustainability of SMEs depends largely on good WCM practices. It is recommended that SMEs operators should take cognizance of WCM practices in order to enhance their performances.