Working Capital Management in SMEs: An Empirical Study from Pakistan

Abstract

Working capital management (WCM) is a critical financial function that significantly influences the operational efficiency and profitability of Small and Medium Enterprises (SMEs). This study investigates the working capital practices of Pakistani SMEs, analyzing the relationship between working capital components and firm performance. Using primary data collected from 150 SMEs across major industrial cities, the research applies regression analysis to assess how inventory management, accounts receivable and payable, and cash conversion cycle impact financial outcomes. Results indicate efficient working capital management enhances liquidity and profitability, while poor management escalates financial distress risks. The findings emphasize the need for SMEs to adopt tailored working capital policies to sustain growth in Pakistan’s volatile economic environment.