Cashflow: How SMEs can keep it in check


There is no one to whom the phrase ‘cash is king’ is more applicable than small businesses.

Many will have to contend with seasonal ups and downs and other external factors beyond their control, particularly in the current political climate.

As well as being equipped to deal with these unforeseen challenges, their rent, utility bills, business rates and other outgoings still need to be paid. Having cash to hand can therefore be critical to staying afloat.

Colin O’Flaherty, Vice President and General Manager UK, Global Commercial Payments at American Express explains that beyond providing a safety net, having a healthy cashflow forecast gives companies a competitive advantage when it comes to planning for expansion.

Accurately understanding how much money will be at hand in the months ahead means companies can be nimble and flexible in taking advantage of growth opportunities.

Be that by investing in new products and services, upgrading equipment or increasing headcount. These investments can be made without the risk of failing to meet operational costs or incurring short-term debts.

Ensuring a smooth financial supply chain also better enables growth through reducing bureaucracy and improving efficiency. Being able to pay suppliers on time breeds trust and loyalty, and helps to establish good relationships that will save both parties time and money in the long run. Many suppliers will offer early payment discounts, which can be taken advantage of by those in command of their cashflow.

Protecting against the elements

Unfortunately, studies show that many SMEs find it difficult to stay on top of cash flow. Recent research conducted by American Express and Oxford Economics found that over 30% of UK SME leaders think that getting the funds to drive growth is difficult.

The good news is that there are simple steps businesses can take towards improving cash flow, as well as new products and services to lend a helping hand. All of which can go a long way.

Four ways to accelerate cashflow

For any business the first and most important step to taking control of cashflow is to accurately track and forecast payments and outgoings. Maintaining an up to date cash flow forecast provides the clearest oversight of the months ahead, to determine how much can safely be invested in growth strategies.

As mentioned earlier, the next step is building strong relationships with suppliers and customers. Artificially improving cashflow, by insisting on longer payment terms with suppliers or shorter payment terms with buyers, can often be tempting.

But unilaterally altering payment terms can breed ill-will and resentment. Instead, working with trustworthy partners to agree payment terms and clearly communicating expectations is the foundation to a good working relationship.

The third step is, when necessary, cracking down on late payments. The most effective way to do this is through offering incentives for prompt payments. This could be providing a small discount or more favourable repeat terms to customers who pay in a timely fashion. It’s also important to have an agreed and consistent escalation process in place, in cases where late payments need to be chased.

Finally, there are products and services that businesses can adopt to improve cashflow. One example is supply chain financing. This is where customers pay suppliers via a bank or third party.

So once an agreement has been reached between the two parties and an invoice approved, the third party pays the supplier their money and the customer holds onto its capital until it receives a single consolidated invoice at the end of its billing cycle.

This allows suppliers to receive their payment immediately and affords customers more time before the money leaves their account – accelerating cash flow in both instances. At American Express we offer this service to thousands of our business customers, offering a critical way to help them manage their cash flow needs.

Ultimately, failure to control cashflow can restrict growth and leave SMEs vulnerable to risk. By contrast, companies leveraging good cashflow management are better equipped to mitigate against external uncertainty and unlock opportunities for innovation and growth – benefiting the company, its customers and its suppliers.