Recent research from the Chartered Institute of Credit Management (CICM) has revealed that 82 per cent of SMEs have faced cash flow issues.
For many small businesses, periods of high activity are often followed by quieter months, which can put significant pressure on finances.
While a business might appear profitable on paper, poor cash flow management can quickly lead to serious issues, potentially even insolvency.
Why are SMEs continuing to struggle?
Cash flow is crucial for businesses, determining whether you can pay suppliers, meet payroll, cover tax liabilities and handle unexpected costs.
When cash flow is healthy, businesses have the flexibility to invest and capitalise on growth opportunities. However, when cash flow is tight, business owners may resort to short-term borrowing or delaying payments – leading to a difficult cycle that’s hard to break.
Late payments are a major issue for SMEs and just one or two delayed invoices can quickly drain cash reserves. This problem is especially pronounced for growing businesses, as expansion often means hiring staff or purchasing equipment before income catches up.
First steps to improve your cash flow
Prevention is key to avoiding a cash flow crisis. Invoices should be issued promptly, payment terms must be clearly defined and a consistent debt collection process should be implemented.
Accounting software that automates invoices and reminders can be incredibly beneficial, while offering alternative payment methods can help customers pay on time.
Regular cash flow forecasting allows you to anticipate potential shortfalls and budget effectively for quieter months.
Additionally, reviewing costs and cutting non-essential expenses during slower periods can alleviate some of the pressure on cash reserves.
If you’re struggling, external finance options such as invoice finance or an overdraft facility can help bridge short-term gaps, particularly when customers have long payment terms.
Prepare your finances now
Cash flow can be one of the toughest challenges in running a business, but with early financial planning, you can set up more resilient systems and make informed decisions.
Our expert team is here to help strengthen your cash flow and build a reserve for when your business faces unexpected expenses or downturns.
For advice on maintaining a healthy cash flow, contact our team today.