Effective management of inventory is essential for the survival and success of a business. Failure to implement proper inventory management practices leads to poor financial performance as well as business failure. The purpose of this study was to determine the relationship between inventory holding management practice and financial performance of small and medium enterprises in the South Rift region. The study's adopted a cross sectional research design. The target population was 2,003 SMEs operating in the South Rift Valley of Kenya. Sample of 167 SMEs were selected using stratified random sampling. The population was divided into twelve strata’s where simple sampling techniques was used to select respondents from each stratum. Validity of the research instrument was ascertained through expert’s opinion while reliability was tested using Chronbach Alpha Coefficient where a value of 0.876 was actualized which reveals that the instrument was reliable. The collected data was analyzed using descriptive and inferential statistics. Tables, graphs were used to present the study results. Linear regression models were used to examine and explain the relationship between different working capital management practices and financial performance in the Southern Rift Valley region. The Pearson correlation results indicate that inventory holding management practice (r = 0.287, p <0.05). The study recommends that SMEs should be educated on inventory management so as to avoid financial difficulty and the need to reduce dependency on external debt and equity financing. This study provided insights on inventory management practices and financial performance of SMEs that inform on policy decisions and practical recommendations to be adopted by SMEs in the Southern Rift Valley region and beyond.