The competitive nature of the business environment requires firms to adjust their strategies and adopt good financial policies to survive and sustain growth. Managing working capital is problematic for the small business firms as they hardly adopt best practices unlike their larger counterparts. This paper, therefore, examines the structural differences in working capital and the financing pattern of 58 small manufacturing firms, operating in five industry groups for the period 1998-2003. An analysis of working capital components and funding pattern shows significant structural changes. While the stocks level and trade debtors have not experienced any major variations, yet they account for 80% of the short-term resources tied up in working capital. Thus, the working capital position of the sample firms reveals disproportionate increase in current asset investment in relation to sales resulting in a sharp decline in the working capital turnover. The mean value is three times, indicating a lower operational efficiency. The study also shows an increasing trend in the short-term component of working capital financing. While the short-term funds, in particular trade credit and other payables, have financed the major part of the working capital, the percentage of long-term funds used to finance the working capital has declined consistently during the same period. This over-concentration on short-term funds is a reality of the SMEs as they often faced difficulties in raising finance to support their business activities.

Any business idea requires resources to become a reality and financing of this need becomes a major decision of managers. Business firms of all sizes select their financial structure in view of the cost, nature, and availability of financial alternatives (Pettit and Singer, 1985). They further argue that the "level of debt and equity in a smaller firm is more than likely a function of the characteristics of the firm and its managers". An enterprise which commits itself to an activity requires finance. No business firm can be promoted, established, and expanded without adequate financial resources. Success and survival of a business depends on how well its finance function is managed. The competitive nature of the business environment requires firms to adjust their strategies and adopt good financial policies to survive and sustain growth. Most firms have an important amount of cash invested in accounts receivable, as well as substantial amounts of accounts payable as a source of financing (Mian and Smith, 1992; and Deloof and Jegers, 1999).

It is a wide belief that the Small and Medium-Sized Enterprises (SMEs) are an essential element of a healthy and vibrant economy. SMEs are recognized and respected in their own right in literature and the continued support this sector received from the government speaks for itself. The capital of a company comprises fixed capital and working capital, which generate production capacity and utilization of that capacity. Financing of working capital has become a very significant area of financial management, more specifically for the SMEs (Watson and Wilson, 2002). Given the changing economic conditions, which are more and more characterized by globalization and increasing competition, the area of working capital financing has assumed added importance as it greatly affects firms' liquidity and profitability (Shin and Soenen, 1998; Deloof, 2003; and Padachi, 2006).

Applied Finance Journal, Business Environment, Financial Policies, Business Firms, Working Capital Financing, Financial Resources, Financial Policies, Working Capital Investments, Capital Asset Management, Banking System, Global markets, Small and Medium Enterprises, SMEs.