Relationship between Cash Conversion Cycle Management Practice and Financial Performance of Small and Medium Enterprises in the South Rift Region, Kenya

Abstract

SMEs account for over 30% of Kenya's Gross Domestic Product (GDP), making them vital to the nation's economic growth and development but they encounter a number of difficulties, such as restricted financial access, poor managerial abilities, and inadequate infrastructure. Cash conversion cycle is a crucial management practice in finance. The study sought to determine the relationship between cash conversion cycle management practice and financial performance of small and medium enterprises in the South Rift region. This study adopted a cross-sectional research design using a structured questionnaire to collect primary data. The target population was 2,003 SMEs operating in the South Rift Valley of Kenya. Sample of 167 SMEs were selected using stratified random sampling. The population was divided into twelve strata’s where simple sampling techniques was used to select respondents from each stratum. Validity of the research instrument was ascertained through expert’s opinion while reliability was tested using Chronbach Alpha Coefficient where a value of 0.876 was actualized which reveals that the instrument was reliable. Tables, graphs were used to present the study results. The study recommends that SMEs should implement cash conversion cycle management practice with minimum degree of cycle procedures in their operations since it had positive relationship with financial performance. This study provided insights on cash conversion cycle management practices and financial performance of SMEs that inform on policy decisions and practical recommendations to be adopted by SMEs in the region and beyond.