Effective Cash Flow Management for SMEs and Start-ups 

cash flow

Cash flow problems are one of the primary causes of business failure, especially for small- to medium-sized enterprises (SMEs) and start-ups. Companies cite slow or lack of payment for services rendered as a significant cause of cash flow issues. However, with a little know-how and a few tricks of the trade, businesses can keep running smoothly and stay afloat. Government, too, can help SMEs keep their doors open. 

Gary Epstein, MD of EasyBiz Technologies, the authorized local partner for QuickBooks Online in South Africa, weighs in on the importance of cash flow management and how to achieve it. 

According to McKinsey & Company, SMEs across South Africa employ between 50 and 60 percent of the country’s workforce across all sectors, are responsible for a quarter of job growth in the private sector, and contribute 39% to the country’s GDP. They are therefore vital to the economy yet staying in business is a constant challenge. 

The effects of poor cash flow on a business can be far-reaching. Business owners can struggle to pay salaries and bonuses and could be forced to pay their suppliers late. They could also miss debt payments, which would result in a lower credit rating and less chance of having loans approved. 

Opportunities to grow the business through investment could also be missed. Poor cash flow can have a negative impact on marketing strategies and competitive advantages and can cause the business to lose out on early payment discounts. The answer is effective cash flow management. 

The following guidelines can help businesses recoup money that is owed to them and manage their cash flow more effectively: 

  • Offer incentives and early settlement discounts. 
  • Invoice early in the month, as many companies do a monthly payment run. 
  • Set non-negotiable payment due dates. 
  • Digitize – use accounting software for invoicing, collections, and outstanding payments. 
  • Offer simple and efficient payment methods. 
  • Encourage debit order payments. 
  • Track accounts receivable to identify and avoid slow-paying customers. Instituting a policy of cash on delivery (COD) is an alternative to refusing to do business with slow-paying customers. 
  • Ensure a quality customer experience so that there are no comebacks or avoidance of payment. 
  • Build cash reserves to cover expenses in lean times. 
  • Reduce expenses to what is required and avoid unnecessary purchases. 
  • Reduce slow-moving stock by selling it for what you can get. 

Apart from the measures companies can take in keeping their cash flow healthy and their businesses intact, the South African Government can also do its bit in ensuring that SMEs are given as much support as possible. Recently, the National Treasury announced that it had set aside R15bn to backstop loans for businesses with a maximum turnover of R100m that have been adversely affected by the floods, the riots last July, as well as the pandemic. 

This latest scheme will be accessed through commercial banks, non-traditional SME funders, and development finance institutions. Loan amounts ranging from a minimum of R10 000 to a maximum of R10m will be available to qualifying businesses. 

In addition, government departments can support small businesses in other ways, for example, when SMEs win government contracts, Government can commit to a 30-day payment policy. Contracts by government departments can be validated and approved based on the availability of funds to pay service providers. 

To conclude, while cash flow difficulties result in the demise of many enterprises, with effective cash flow management, this can be avoided. With extra help from available resources like accounting software to report on cash flow status, as well as facilities to send and track invoices and payments, SMEs have a good chance of staying the course and going from strength to strength. 

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Where a party receives any personal information (“PI”) related to the other party, the party who receives the PI, will comply with and have adequate measures in place to ensure that its employees, agents, subsidiaries and representatives comply with the provisions and obligations contained in the Protection of Personal Information Act, No. 4 of 2013. Any PI pertaining to one party which is required by the other party, will only be used by that other party for the purposes of this contract and will not be further processed or disclosed without the written consent of the latter and the recipient of that PI will take all reasonable precautions to preserve the integrity and prevent any corruption or loss, damage or destruction of the PI. If and when the contract is terminated, each party will, save to the extent that it is required to do otherwise by any applicable law, erase or cause to be erased, all PI and all copies of any part of the PI relating to the other party”.