Unfortunately, hitting the right balance between money coming in versus that due out is a delicate balancing act, and isn't easily mastered. In fact, as many as 44 per cent of SMEs under three years old report that they have either run out of money altogether or come dangerously close.
To grow, SMEs must try to retain as much working capital as possible, whilst maximising on their available funds to ensure necessary investment is made in improving efficiency, productivity and ultimately, bottom line.
But with so many proverbial plates to spin, how can this be achieved?
1. Keep clients in check
Agreeing payment terms from the outset and, where possible, offering an incentive for paying on time are good ways of ensuring you see your money sooner.
However, always take responsibility for discussing payment terms up front. It's no good invoicing after the work's completed with 30-day terms if this wasn't agreed beforehand. As documented in the Forum of Private Business' Late Payment 'Hall of Shame', some major corporations, such as Sainsbury's and GlaxoSmithKline, operate late payment terms as standard practice - sometimes extending them to as much as 95 days!
2. Be organised with invoicing
For this reason, always be sure to invoice as soon as a job is completed. In small businesses where a strict procedure is not in place, it can sometimes take days and even weeks for clients to be invoiced. The quicker you get the invoice out, the quicker you get paid.
A good tip is to invoice via e-mail as well as post. Not only is it quicker, but you can apply read receipts so you know it's been received. All too often, small businesses wait until the 30-day period's up to chase unpaid invoices only to hear that the client's never received it.
3. Find out about alternative finance
Alternative forms of funding have been gaining real traction in the lending sector in recent years, largely down to small businesses struggling to gain access to traditional loans. Invoice finance in particular - by which businesses can unlock money tied up in unpaid invoices - is good for aiding cash flow.
4. There's an app for that
Making use of emerging technology, such as business finance apps or Google Docs templates, is a really effective way of keeping on top of cash flow. If you can predict when money's going to run a little tight, and when you can afford to stash a bit away, makes it much easier to control spending and ensure provisions are in place for when you need them.
5. Forget profit - Cash is King
Too many business owners are too preoccupied with profit to nurture their cash-flow. Until it's too late, that is; payments due mean nothing when there are staff and suppliers to pay imminently.
Concentrating too much on what's coming in rather than the here and now is the basis of overtrading - a phenomenon by which businesses encounter a bottleneck effect on their finances and are unable to service demand.
Live by the principle that if your cashflow is in order, your profit will take care of itself.
6. Refine your values
Believe it or not, part of making sure you're paid on time by clients is by keeping your own business persona in check. Relationship building is one of the most important aspects of business practice.
If it sounds simplistic, that's because it is; the more a client likes you, the more likely you are to be at the top of their payment run or to be granted some leniency if you get into a spot of bother. Where possible, make an effort to build genuine relationships with your suppliers and clients alike.
Cash flow shortages can be extremely damaging to SMEs. To stand the best chance of keeping cash flowing freely through the business, keep to these top rules of business practice.
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