Why is Cash Flow Always a Problem for SMEs?

Why is Cash Flow Always a Problem for SMEs?

The one issue that consistently concerns SMEs is cash flow. Uncertainty about the UK’s political and economic future may hamper growth, as will lack of confidence generally, but cash flow is always a pressing problem.

A working capital survey last year found that over 50% of UK SMEs found experiencing cash flow problems to be the biggest obstacle to growth. With many of them finding the cost of funding on the rise, they are concerned about what the future holds.

Cash flow is a long-term issue, because it makes the future so hard to read. However, it also has a more immediate effect, because so many companies rely on cash flow to cover their overheads. Lack of cash flow can have a negative impact on supply chains, staff and, ultimately, customers.


Forecasting Cash Flow

“Businesses can collapse not because they lack profitability, but because they lack cash,” suggests Paul Daine, Managing Director of Manchester-based, Premium Collections. “It’s critical you have enough cash to operate effectively, whether this is paying your suppliers, your staff or your rent.”

Paul points out that there are basics that SMEs can overlook when it comes to managing their cash flow. One is keeping accurate, up to date records.


“If you’re like many businesses and relying on management accounts that are four months out of date, then it’s harder to stabilise your cash flow”

Paul Daine, Premium Collections


“Invest in a good software package that will tell you where you’re up to at any given time,” suggest Paul. “Be clear about where you stand with your cash.”

SMEs should use this knowledge to then project forward and set targets. This means making sales forecasts and anticipating the business’ future cash needs.

“A cash flow forecast should give you an indication of what extra funding your business will need, while highlighting likely difficult periods ahead,” Paul observes.


Debt Recovery Options

Staying on top of your debtor requires diligence, and a systematic approach to credit control.


“Ensure that you agree payment terms with your customers before you undertake any work for them, or supply them with something”

Paul Daine, Premium Collections


Following this, it is a case of invoicing promptly, and having a clear process for following up on late payments.

“It should be about escalation,” Paul advises, “including letters, emails and phone calls. Stick to your process, but be flexible where required, and consider withholding deliverables if necessary.”

Paul advises that if late payment problems persist, do not write off the debt but seek professional guidance for commercial debt recovery.

“Find the right kind of professional support that will tackle late payment or non-payment issues on your behalf,” he concludes, “because cash flow is your business’s lifeblood and it’s vital to get it moving again.”


For more of Paul Daine’s views on this issue, please read his LinkedIn post.

Alternatively, if you want to improve your cash flow or tackle payment issues, please call Premium Collections on 0161 962 4695 or visit premiumcollections.co.uk.