Abstract:
Even though having an expanded sector of Small and Medium Enterprises is a basic feature of
a healthy economy, the attention paid to their issues especially in developing Countries such
as Sri Lanka is inadequate. Instead, researchers have involved in studying issues related to
large scale organizations. Enterprises are categorized using several measurements. Some of
the quantitative factors used in measuring an enterprise are the value of the equity, tangible
assets, healthiness of the balance sheet and number of employees. On the other hand, the
most famous qualitative measure has been the ownership and the operating structure. In the
world, more than 90% of organizations are SMEs. Central Bank defines the small industry
as an establishment having employees less than 2 5 and an investment less than 1 million.
Ministry oflndustry classifies it as one whose fixed assets are less than 5 million. National
Development Bank (NDB) classifies small enterprises as the enterprises with investment
less than RS.2 0 million, excluding land & Buildings.
The objective of this study is to identify the Working Capital Management Issues of
SMEs, the reason for those issues and how they have affected operations of SMEs. The
study interviewed owners and accountants of 12 companies including garments, food
manufacturing and furniture manufacturing industries and printing firms. Further, data
were collected through administrating a questionnaire. The sample comprising of 12 SMEs
was divided into two basic groups based on the number of employees and the value of
investments. Out of the total sample 75% firms employed less than 2 0 employees and
investment is less than Rs 500,000. Rest of the firms comprise of2 0 to 2 00 employees and
investment Rs. 500,000 to Rs 5,000,000. Finally the sample included of 75% of small and
2 5% of medium scale firms. The study finds that the lack of knowledge on working capital
is the main problem of SMEs in Sri Lanka. This shows the requirement of organizing
awareness programmes on working capital management for SMEs. Thus, it seems that
SMEs would be able to improve their financial efficiency if they get their working capital
issues solved.
