Cash flow is by far the biggest stress point for business owners, as clearly shown by the results of our latest Scottish Pacific SME Growth Index.

Whether you’re a business owner or an accountant, adviser or broker working with SME clients, the important thing to note is that unlike the inevitability of death and taxes, there are ways to improve cash flow!

First, let’s take a look at the problem.

We polled 1200 SME business leaders from around Australia, and cash flow was cited by 79% as the issue most likely to cause sleepless nights.

Business owners say cash flow is increasingly the dominant issue causing stress, so we asked what caused their cash flow problems over the past 12 months.

Main causes of cash flow woes

SMEs continue to pinpoint government red tape and compliance issues as the main cause of cash flow problems. These issues were nominated by three-quarters of businesses, across the total market of growth, consolidating and declining SMEs.

The other key causes were the dual problems of customers paying late and suppliers reducing payment terms. This means business owners are feeling the pressure from both ends of the supply chain, which places major strains on efficient working capital management.

SMEs talked about having difficulty meeting tax payments on time, being unable to take on new work and capital expenditure due to cash flow restrictions.

This cash flow drain is holding back the whole sector, with almost all SMEs saying if cash flow had been better in the past 12 months they would have generated more revenue.

The cash flow squeeze is on, there’s no doubt. The good news is that there are actions business owners can take to maximise their cash flow.

Quick short-term cash flow fixes

  • Improve invoice processes – you’d be surprised how simple improvements, such as giving customers multiple payment options, sending invoices and follow-ups on time and clearly stating details, can lead to improved payment times.
  • Prepare cash flow forecasts – doing this helps you identify potential cash flow issues before they even happen. Ask your trusted adviser to help you prepare the forecasts, and run scenarios about how you would manage if sales increased or decreased.
  • Check credit ratings before taking on a new customer and do regular checks on existing customers to avoid being caught out.
  • Renegotiate supplier and customer contracts – it’s hard to survive on razor-thin margins, so regularly review what it costs to run the business, compared to what you charge customers.
  • Request a deposit for large or special orders.
  • Keep stock moving – if you have slow-moving or obsolete stock, replace it with items that have a faster turnover.
  • For more cash flow management tips, download our free guide.

A more permanent solution to cash flow woes

Finding the right style of business funding can have a major impact on the working capital available to a business.

There is a style of finance that, for SMEs operating on trade credit terms, allows you to boost cash flow and relieve the worries, pressure and stress related to day to day financing of the business.

Invoice finance (also known as debtor finance or receivables finance) is a line of credit that smooths out cash flow peaks and troughs for businesses that sell goods or services on credit terms.

Invoice finance means that you receive an advance on invoices already owed, and your funding grows in line with sales (without the need to be constantly increasing the funding limit, as happens with an overdraft).

You can boost turnover by bringing cash receipts forward, using a line of credit linked to and secured by outstanding accounts receivable.

This gives you more confidence about taking on large new projects or clients; with the additional outlay in staff, raw materials and other resources that such growth requires.

Having cash flow certainty also allows you to negotiate supplier discounts for early payment.

Invoice finance is a self-liquidating facility – business owners are not taking on additional debt, but rather receiving an advance on money that is already owed.

It’s a great way to use today’s sales to fund tomorrow’s growth, and to avoid having to offer costly settlement discounts.

It can be used as a stand-alone funding method or in conjunction with an overdraft facility.

Invoice finance removes the requirement to offer the family home as security, allowing business owners to use their property assets to build personal wealth instead of being locked into the business.

There are variations in how the service is delivered, ranging from Confidential Invoice Discounting (for larger, more sophisticated businesses with a dedicated finance department) to the option of full management of accounts receivables (which allows smaller businesses to focus on their growth rather than chasing outstanding invoices).

Flexible options tailored to your needs

There are also various facilities able to be used alongside invoice finance, from trade finance solutions for importers and exporters through to asset finance that business owners can use to fund against plant and equipment or property, helping you unlock value from your balance sheet.

It’s all about having flexible working capital to support the business, so that the business owner is not wasting valuable hours fretting over bills and unpaid invoices.

Instead, business owners can take control of cashflow and boost working capital levels to accelerate growth and investment.

If you, or your SME client, are not sure which product suits best then try this quick solution-finder tool.

To download the latest copy of our SME Growth Index, click here.