Effect of Trade Receivables and Inventory Management on SMEs Performance

This paper investigates the effect of trade receivables and inventory management on SMEs profitability in Malaysia. 66 sample of SMEs Manufacturing covering from 2006-2012 was used for the analysis. Ordinary least square (OLS) regression is used to estimate the relationship between independent and dependent variable. The result indicated that days account receivable and inventory turnover in days are negatively related to SME profitability proxies i.e. return on assets (ROA), return on equity (ROE) and net operating profit (NOP). The result implies that profitability of SME manufacturing depends upon effective of working capital components management. Therefore, the paper suggests that SME manufacturing can improve their Profitability upon managing working capital properly. Recommendations for future study were also discussed.