In the last issue, we looked at the challenge of chasing late payments. Now we list the simple steps ¬– both high and low-tech – that any SME can take to keep their cash flow running smoothly. These can mean be the difference between success and failure for SMEs.

1. Know what your cash flow looks like

It sounds obvious, but before you can improve cash flow, you need a good understanding of how your business is performing.

Review your accounts payable and receivable, your credit facilities and agreements and your stock levels. Look into your sale costs and expenses to spot what’s taking money out the business. Develop regular reporting, and create targets for you and your staff to achieve – cash flow management should operate throughout your SME, so make sure everyone knows their responsibilities.

Once this is in place, create a robust forecast for how your business is likely to perform on a rolling 12-month basis.

2. Make someone accountable for monitoring cash flow

In some SMEs – particularly those that are very new or very small – cash flow responsibility is often added to someone’s existing duties.

Instead, make sure it’s properly resourced, and that whoever takes it on is adequately trained. This is usually more cost-effective than third party support. (It also often helps if the person monitoring cash flow really understands the business.)

3. Use technology to manage cash flow

With a range of affordable cash flow management tools specifically for SMEs on the market, why not take advantage?

For many SMEs who rely on error-prone paper records and spreadsheets, moving to digital accounting would enable them to keep a tighter rein on cash flow.

Having a reliable system in place will not only save you time and money, it will also allow you to forecast more accurately, give you 24 hour access to real time reports and give early warning of any potential cash flow issues your business could face.

4. Balance your customer and supplier terms

One of the most common reasons for cash flow problems is an imbalance in customer and supplier terms. If the average time it takes customers to pay significantly exceeds the time it takes you to pay suppliers, you could find yourself in trouble.

Invoice quickly, and make sure your customers fully understand your payment terms. Develop a robust collections process to cut the time it takes for invoices to be paid, and consider offering incentives for early or up-front payment.

Form good relationships with your suppliers, and negotiate improved terms to increase the time you have to pay your invoices.

5. Make paying you easy

There’s an ever-increasing number of payment methods you can offer customers, so make them available. Even credit or debit card payments help, yet a surprising number of UAE SMEs still rely on cheques.

Solutions like Basware, iPayables or Tradeshift haven’t really taken off in the UAE yet, but it’s worth getting up to speed with them, as they may soon. They enable companies to issue or pay invoices securely via the Cloud, eliminating the potential for mistakes and delays that exist with paper invoices.

Don’t forget that some customers will prefer more traditional methods though: never make technology a barrier.

 

Disclaimer:
“The opinions expressed within this article are generic. Mashreq is not responsible for the accuracy, completeness, suitability or validity of any information on this article. The information, facts or opinions appearing in this article do not reflect the views of Mashreq. Mashreq does not assume any responsibility or liability for the same.”

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