dc.description.abstract | Working capital management is considered to be a crucial element in determining the
financial performance of an organization. In this study, the purpose was to investigate
working capital management practices and their effect on financial performance among the
sugarcane out-grower companies in Kenya. Using descriptive research design, a total of 30
managerial staff members from the ten out-grower companies were targeted by way of
completing a standardized and semi-structured questionnaire. Data were processed and then
analyzed using descriptive statistics and correlation analysis. The study found that sugarcane
out-grower companies’ WCM practices were comparatively more conservative and as a result
weakened the companies’ financial performance indicators. Specifically, it was observed that
the companies’ receivables were concentrated on loans advanced to members and accruing
interests. However, trade receivables period was longer than payables period, indicating that
the companies did not accelerate receivable periods to secure profitability. Also, the study
found that receivable acceleration schemes adopted by the companies were not competent
enough to mob-up receipts. Under payables, there was a possibility that majority of
companies did not utilize payables as sheer source of financing. This was the case because
payables were more accelerated than receivables, yet delay instruments were inadequate to
relatively shorten the firm’s receivables. In inventory management, the companies held stock
unnecessarily for long yet they were in a lower stock-out risk zone. Moreover, the companies
demonstrated naivety in order management and control of inventory shocks. There was too
much cash held compared to any other current asset signifying higher preference to liquidity
as opposed profitability. Moreover, the companies lacked innovation in investing the excess
cash and there were weaknesses in internal controls. Based on these findings, the study
concluded that poor financial performance was dependent on weak WCM practices adopted
by the out-grower companies. It was recommended to management to establish a credit
control systems preferably with a full-time credit officer and follow credit control policy
procedures. In addition, there was need for appropriate collection policies to ensure that
amounts owing are collected as quickly as possible. Further, it was highly necessary for out grower companies to be capacity-built both financially and technically to shift from the
manual accounting controls to computerized platforms. Finally, there was need for the
companies to engage suppliers to allow for reasonable credit periods. | en |