INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 IJARKE Business & Management Journal DOI: 10.32898/ibmj.01/3.1article17 www.ijarke.com 159 IJARKE PEER REVIEWED JOURNAL Vol. 3, Issue 1 Aug. – Oct. 2020 Influence of Working Capital Management Practices on Profitability of Small and Medium Enterprises in the Manufacturing Sector in Eldoret Town – Kenya Ofunya John Kennedy, Kisii University, Kenya Dr. Wafula Joshua Chesoli, Kisii University, Kenya Prof. Christopher Ngacho, Kisii University, Kenya 1. Introduction Significance of SMEs towards achievement of growth and development, especially in less developed countries worldwide is a subject that has recently caught attention of many researchers (Shelley, 2004). Best known for their utilization of local resources and intensive use of labour, SMEs are considered the backbone of many economies. For instance, in a recent National Economic Survey report by the Central Bank of Kenya (CBK) shows that SMEs constitute 98 percent of all businesses in Kenya, create 30 percent of the jobs annually as well as contributes 3 percent of the GDP (Viffa, 2018). According to the Kenya National Bureau of Statistics survey, (KNBS, 2014) 80 percent of the 800,000 jobs created in the year came from the informal sector which is dominated by the SMEs. The sector also contributed Kshs. 806, 170 million (59%) to the Gross Domestic Product (GDP) of Kenya (RoK, 2009). Further, as recent as 2011, the sector contributed 79.8 % of new jobs (RoK, 2012). Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ less than a given number of employees. This number varies across countries. The most frequent upper limit designating an SME is 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States considers SMEs to include firms with fewer than 500 employees, OECD, (2005). Sonia (2009) opined that notwithstanding the significant role played by SMEs in development of various economies worldwide, and the support provided by the respective governments, SMEs failure rates remain alarmingly high, with statistics showing a failure rate of three out of five of them getting into extinction within the first year. Sonia attributed the high failure rates to inability to effectively manage working capital (WC), which comprises of current liabilities and current assets. Working capital being the difference between current assets and current liabilities, WC focuses its attention on optimization of investments in current assets and the way current assets should be financed. The levels of investment in SMEs should avoid either inadequate or excessive investment in current assets. Inadequate amount of working capital may expose the firm to insolvency while excessive investment should be avoided as it impairs the firm’s profitability. Thus, when a need for working capital ar ises due to the increasing level of business activity, financing arrangements should be sought quickly. Similarly, if surplus funds arise, they should be invested in short term securities (Pandey, 2008). INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH (IJARKE Business & Management Journal) Abstract Small Medium Enterprises became important industrial sector in spurring economic development within the world today. This research only targeted registered SMEs within the manufacturing sector in Eldoret town. Specific objectives of the study were: to investigate the influence of accounts receivable period on profitability of SMEs within the manufacturing sector, in Eldoret town, Uasin Gishu County; and to research the influence of money conversion cycle profitability of SMEs within the manufacturing sector, in Eldoret town, Uasin Gishu County. This study adopted descriptive research design. Target population of the research comprised of 656 firms. A sample size of 322 registered SMEs within the manufacturing sector in Eldoret town, Uasin Gishu County was sampled. The research utilized first data from the target research participants. Both descriptive and inferential statistics were adopted using Statistical Package for the Social Sciences (SPSS) computer package. The result of this research, it is hoped, will be beneficial to varied stakeholders, who include the govt., SMEs, lending institutions, researchers and scholars. The findings of this study show that there is positive and significant relationship between Accounts Receivables and profitability. Cash conversion cycle had a significant relationship with profitability. Key words: Accounts Receivable Period, Cash Conversion Cycle, Profitability, Manufacturing Sector