Working Capital Management Practices and Operational Efficiency of Small and Medium Enterprises (SMEs) in Oyo State, Nigeria

Abstract

This study examines the effect of working capital management on the operational efficiency of Small and Medium Enterprises (SMEs) in Oyo State, Nigeria. The study adopted a quantitative descriptive survey design to examine the effect of working capital management on the operational efficiency of SMEs in Oyo State, Nigeria. The population comprised 1,018 employees from nine purposively selected manufacturing SMEs across three LGAs that is Oluyole, Ibadan South West, and Ibadan South East. Using Yamane’s (1967) formula at a 95% confidence level, a stratified random sample of 287 respondents was selected to ensure proportional representation. Data were collected via a structured, expert-validated questionnaire adapted from Williams (2025). A pilot test with 30 participants informed refinement, and reliability was confirmed with Cronbach’s alpha values ranging from 0.79 to 0.88. Data were analysed using simple percentages for demographics and regression analysis with SPSS to test the stated hypotheses. The findings indicate statistically significant positive relationships between working capital management practices and operational efficiency across all objectives. Cash management habits demonstrated a strong positive effect (R = 0.631, R² = 0.398, F(1, 285) = 188.099, β = 0.631, t = 13.715, p < 0.001, mean = 3.76 ± 0.56), suggesting that effective cash handling substantially enhances efficiency. Inventory management practices exerted an even greater influence (R = 0.666, R² = 0.443, F(1, 285) = 226.759, β = 0.666, t = 15.059, p < 0.001, mean = 3.78 ± 0.53), Accounts payable management exhibited the strongest impact (R = 0.711, R² = 0.505, F(1, 285) = 291.300, β = 0.711, t = 17.068, p < 0.001, mean = 3.76 ± 0.58), indicating that timely and strategic payment practices reinforce supplier relationships and cash flow stability. Accounts receivable management also showed a significant positive effect (R = 0.577, R² = 0.333, F(1, 285) = 142.421, β = 0.577, t = 11.934, p < 0.001, mean = 3.78 ± 0.46), demonstrating that prompt collections and appropriate credit policies maintain liquidity. The study concludes that effective working capital management is vital for improving SME operational efficiency. Recommendations include implementing systematic cash flow forecasting, inventory control, and adopting digital tools to optimise financial processes.