Micro, Small, and Medium Enterprises (MSMEs) play a critical role in economic development through their contribution to employment generation, innovation, income creation, and industrial growth. However, limited access to external finance and persistent liquidity challenges make effective working capital management essential for their survival and long-term success. This study examines the relationship between working capital efficiency and the financial performance of MSMEs through a systematic conceptual review of the literature. Drawing on the Resource-Based View (RBV) and Liquidity-Profitability Trade-off Theory, the study synthesises evidence from seminal and contemporary research on key dimensions of working capital management, including cash management, inventory management, accounts receivable management, accounts payable management, and cash conversion cycle efficiency.

The review adopts a PRISMA-based literature selection process and analyses empirical and conceptual studies published between 2003 and 2026. The findings consistently indicate that efficient working capital management enhances profitability, liquidity, operational efficiency, business growth, and long-term sustainability. In particular, a shorter cash conversion cycle, effective receivables collection, and optimal inventory management are found to positively influence financial performance. The review further suggests that working capital efficiency functions as a strategic organisational capability that strengthens financial resilience and competitive advantage, especially within resource-constrained MSME environments.

Based on the synthesis of existing evidence, the study develops a conceptual framework and research propositions linking working capital efficiency to MSME financial performance. The study contributes to the literature by providing an integrated understanding of these relationships and offers managerial and policy recommendations for improving MSME competitiveness and sustainability. Future research is encouraged to empirically validate the proposed framework across diverse industrial and geographical contexts.

Keywords: Working Capital Efficiency; Working Capital Management; MSMEs; Financial Performance; Liquidity; Profitability; Cash Conversion Cycle; Sustainability; Resource-Based View.