Six ways SMEs can control cash flow
6th May 2020
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Poor cash flow can kill businesses, so what measures can small to medium enterprises (SMEs) take to ensure they stay profitable and sustainable?

According to the Federation of Small Businesses (FSB), nearly 40% of small businesses that borrowed money in the last quarter of 2019 used cash to keep going, rather than to invest. This compared with 23% using finance to update equipment, 16% to expand or 2% for hiring staff.

The fact the so many SMEs are using external finance to cover outstanding invoices highlights the late payment crisis, says the FSB. The latest figures from Pay.UK show that the balance of outstanding late payments almost doubled to £23bn in 2019.

It has been estimated that 30% of payments to small businesses are late. This means 20% of SMEs run into cash flow problems due to late payments.

So how can SMEs take control of their cash flow?

#1 Financial Planning
The negative impact of poor cash flow can strangle a business. Late payments can hurt a company’s credit ranking, making it difficult to access borrowing from banks and grant providers. The anxiety over cash flow can dramatically reduce productivity as the focus switches to immediate pressures.

Building a robust financial plan for your business, which takes into account potential risks from late payments, can provide a pathway to success and security.

#2 Payment Options
Offering a wide range of payment options will increase the chances of being paid on time, helping your business to achieve a positive cash flow each month. For example, set up direct debit payments using an online service such as Go Cardless, which charges a small fee on each transaction.

#3 Real-time Accounts
Accounting, and now taxation, are rapidly becoming digital with online platforms offering real-time tools so business owners can monitor their financial health on a daily basis. The clever software can also predict your cash flow over the coming weeks and months, allowing you to take preventative action to avoid cash flow problems.

#4 Review Your Terms
If you struggle with late payments, take time to review and update your terms. If necessary, set stricter rules and then be absolutely clear about your new payment terms and communicate these to your customers from day one. Be sure to document your terms in your contracts, quotations and invoices.

#5 Enforcement
There is no point having strict payment terms if you don’t enforce them. Rather than simply, cracking down on late payers, consider offering incentives for prompt or early payments such as small discounts or favourable repeat terms. Formulate an agreed escalation process, so late payments are chased immediately.

#6 Financing
Factoring or supply chain financing allows SMEs to improve their cashflow by paying suppliers via a bank or third party. For example, once an invoice is approved, the third party pays the supplier and the customer holds onto its capital until it receives a single consolidated invoice at the end of its billing cycle.

Suppliers receive payments immediately while customers can get more time before the money leaves their account – improving cash flow for everyone.

Take Action Today
At HB Accountants, our team our financial experts can give you the practical advice you need to improve the cash flow of your business. Contact us today on 01992 444466, email or visit

Our office at 19 Amwell Street, Hoddesdon, Hertfordshire, EN11 8TS is open Monday to Friday 8am to 5pm.

About the Author

Victoria H

Member since: 11th March 2014

My name is Victoria Hunter and I'm a true Hertford person - I went to school in Hertford and grew up here. I understand the importance of bringing trusted businesses and the community together, and believe...

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