Working capital management practices of small and medium enterprises in Kampala Central Division in Uganda

Abstract

The purpose of the study was to analyze working capital management practices of small and medium enterprises in Kampala Central Division in Uganda. A cross sectional study design was applied that enabled the researcher to gather data from the respondents at a particular time. The total sample size for this study comprised of 30 respondents that included business managers and operators of SMEs. Data was collected using interviews recorded by enumerators. The study findings were; debtors’ management has both positive and negative effects on business profitability and growth, uncertain cash flows affect payment of bills, and also affect revenue generation of the businesses. Inventory management practices involve planning for purchases and sale of goods, stock taking, demand forecasting and stock management. Short cash conversion cycle gives hope for future business expansion, it is a way of saving the business money for other investments, and it redeems the business during times of recession and increases positively the profitability of businesses. Cash management practices such as cash planning, cash recording, proper and accurate billing of customers, delaying of payment to vendors and encouraging faster payment from debtors equally influence the growth of SMEs.

From the study findings, it was concluded that effective debtors’ management greatly influences the business growth and performance of the SMEs; inventory management practices of the SMEs have an impact on the growth trends; short cash conversion cycles provide favorable conditions for business excellence in SMEs and vice versa; and cash management practices of the SMEs have a great influence on their business growth, though a room for improving the deficiencies noted during the study awaits. Based on these conclusions, the study recommends the need by the Government to organize trainings for SMEs managers and proprietors on the basics of work capital management; need by the entities biased on growth and development of SMEs such as Uganda Manufacturers Association (UMA), Uganda Small Scale Industry Association (USSIA), for exposing the SME owners on the basics of inventory management practices; need for automation of the inventory processes to reduce on the amount of time that is spent on moving and counting items around the ware house; and need by the management of SMEs to establish credit control department or section with a fulltime responsible officer charged with ensuring that the credit guidelines are followed, and the terms agreed upon with the customers well negotiated.