Working capital management: evidence from Indian SMEs

Abstract

ABSTRACT This study examines the practices and policies adopted by Indian small and medium-sized enterprises (SMEs) to manage working capital and its various components. A survey of owners/managers of 269 Indian SMEs identified working capital management (WCM) practices. Findings of the study indicate that Indian SMEs typically have an informal approach toward WCM and these firms try to match the maturity of assets and financing sources. These SMEs mainly depend on internal funding from retained earnings and external funding from a line of credit to fund working capital needs. Indian SMEs consider the cash conversion cycle and net working capital as a key value metrics in monitoring working capital. Micro-, small-, and medium-sized firms often differ in terms of their WCM practices. By updating and extending previous research on WCM, this study fills a gap in the literature by providing insights into practices adopted by Indian SMEs managing WCM and its components.