Cash flow is one of the biggest issues which SMEs face. Without a steady cash flow, it is difficult for SMEs to manage day-to-day operations and invest in growth. In the UK alone, late payments are currently found to be costing small businesses £22,000 a year on average. Paul Holland, Managing Director for UK/ANZ Fleet at Corpay, including UK brand, Allstar, explores the issues facing SMEs and cash flow, and what can be done to keep cash flowing.
Businesses in the UK have been battling against the tide of cash flow challenges for several years, with inflation and economic uncertainty high on the culprit list for many that were able to survive the harrowing years of the pandemic. Without a steady flow of funds arriving and leaving on time, small- and medium-sized enterprises (SMEs) are faced with disrupted operation, limiting their ability to pay suppliers and employees, invest in growth and manage day-to-day expenses effectively.
The problem became so severe that late payments are currently found to be costing small businesses £22,000 a year on average. The government stepped in, announcing the New Fair Payment Code, which includes new measures and a consultation to combat the issue, which leads to 50,000 business closures a year.
And, with 41% of businesses admitting that late payments are the primary culprit for causing cash flow issues in Allstar’s latest insights, how systemic is the problem and what can SMEs do to ensure cash keeps flowing?
What does the data tell us?
Allstar’s research, which surveyed 500 SME business owners and decision-makers, completed with Censuswide, found that over half (54%) cite cash flow as an issue and up to 70% say that the burden of cashflow and admin has significantly hampered business growth. Commonly this can mean that businesses have insufficient funds to cover their daily operations and expenses like payroll or utilities, or aren’t able to invest in opportunities for growth, like hiring new staff or launching new campaigns or projects.
These impacts are largely internal but poor cash flow can fracture relationships with those outside the company that are crucial to success. For example, without a healthy cash flow, payments to suppliers could easily be delayed. Not only can this put a strain on relationships, but it can disrupt the entire supply chain, particularly if they refuse to extend credit terms or withhold good deals or discounts in the future.
Additionally, cash flows are being impacted predominantly by inefficiencies, and just over half say they spend up to six hours a week managing costs and their cash flow. This means that businesses are losing a fifth of their working week, which is a significant loss when they should instead be focusing on growing the business, investing their time into bolstering their bottom line. This is more important than ever in the current climate of high costs, inflation, global economic impact and recruitment challenges that all contribute to making it harder to manage operational costs.
There is hope, however, with business owners already having a good understanding of some of the factors that could ease these pressures; more than a quarter (28%) said that faster payment of invoices is the key to helping their business save time, and 27% say it would solve admin and cash flow problems.
Keeping cash flowing
Burdened with a daily onslaught of challenges including cash flow management, SME owners are on the lookout for little wins that make their lives easier by removing points of friction and prioritising simplification.
This can take many forms, and what will work best for one company might not be the same for another, but there are certain tools or practices that help. For example, cutting out non-essential costs. The saying of ‘look after the pennies and the pounds will take care of themselves’ is true – every saving can contribute towards a healthier bank balance.
Similarly, try to liquidate slow moving inventory to free up cash tied up in stock that may be containing the business’s cash flow, or avoid under or overstocking generally. Meanwhile, maintaining a good relationship with your customers and suppliers is crucial to win trust and build stronger bonds that make negotiating longer payment terms easier and discounts more likely to come your way.
Improving efficiencies across your workforce will help streamline workloads and improve productivity. For example, look to optimise work processes by removing any unnecessary steps and automating repetitive tasks, as this can avoid bottlenecks and mitigate time wastage. Elsewhere, prioritising staff training and ensuring they are onboarded effectively can avoid issues down the line. By making sure they are well equipped from day one, this can avoid any issues or mistakes that become habitual, while keeping up with training can help ensure they are performing their tasks at an optimum.
Beyond these tactics, businesses are able to further drive down their cash flow headaches by harnessing the latest tools and products that could give customers up to 44 days’ interest free credit on all business purchases. Such solutions could help to make business payments and expenses easier to manage, as one relationship creates ‘less work’.
Helping everyone thrive
It’s a tough climate for the UK’s SMEs; our insights show that one of the biggest issues that are impacting cash flow are late payments. That’s why business owners and proprietors are increasingly looking for ways to simplify their operations and improve efficiencies, making these arduous tasks less work.
There are many ways to achieve this throughout an organisation focusing on what works best for them and their needs. By now it is universally accepted that consolidating processes and improving efficiencies by utilising an all-in-one solution helps achieve this by enabling more simplicity and easier management.
In doing so, SMEs can re-focus their attention to those big-ticket items that require their expertise and attention and will ultimately mean the business can focus on its own success and that of the economy.
