Enhancing SMEs Profitability Through Effective Working Capital Management: A Case Study of Lusaka’s Central Business District, Zambia
DOI:
https://doi.org/10.59413/ajocs/v6.i3.14Keywords:
Working Capital Management, SME Profitability, Cash Flow, Lusaka CBD, Financial PracticesAbstract
The aim of this study was to examine how effective working capital management (WCM) practices can enhance the profitability of SMEs in this region, with a focus on evaluating the role of inventory management, accounts receivable, accounts payable, and cash management in improving financial performance. Given the vital role SMEs play in Zambia’s economic growth and job creation, the study also explores current WCM practices among these businesses and identifies the key challenges they face in managing working capital efficiently. A cross-sectional design and pragmatic mixed-methods approach were adopted, collecting data from 93 SMEs through structured questionnaires and semi-structured interviews. Quantitative results revealed a strong positive correlation (R = 0.740) between WCM components—Inventory Management Practices (IMP), Accounts Receivable Management (ARM), Accounts Payable Management (APM), and Effective Cash Management (ECM)—and SME profitability, with these practices explaining 54.7% of the variance in profitability (R² = 0.547). ECM (β = 0.574, p < 0.01) and IMP (β = 0.297, p < 0.05) were statistically significant predictors. Although Access to Finance (ATF) was included as a control variable, it was not a significant predictor, indicating that internal financial practices may play a more critical role in driving profitability than external financing. Qualitative findings supported these insights, revealing common challenges such as poor cash flow forecasting, inefficient inventory systems, and limited access to financial management tools. Respondents emphasized the need for structured WCM frameworks, enhanced financial literacy, and better access to affordable credit. The study concludes that improving profitability among SMEs in Lusaka’s CBD requires not only better financial access but also stronger internal financial discipline, and recommends targeted capacity-building programs, digital financial solutions, and supportive policy interventions.
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