Why bad cash flow management is bad news for SMEs
No matter what you sell, whether it’s products or services, cash flow management can be the difference between success and failure.
Cash flow management means tracking the money coming into your business and monitoring it against outgoings such as bills, salaries, and property costs. When done well, it gives you a complete picture of cost versus revenue and ensures you have enough funds to pay your invoice whilst also making a profit.
All business owners will want to avoid cash flow problems. However, due to their size and ability to access financial resources, SMEs are often disproportionately affected by negative cash flow.
Where a larger business may have funds available as a stop-gap between late payments, smaller businesses rely more closely on their predicted monthly income to ensure their financial commitments are met. In serious cases, business owners can be left with no choice but to use personal funds to keep their business afloat.
For ambitious businesses looking to grow, long-term negative cash flow can put these plans on hold. Instead of investing time and energy into a thriving, business owners will be left scrambling to stay afloat month by month.
One way to maintain positive cash flow is by running regular credit checks on your client and suppliers. Before entering into any contract, tools such as Experian Business Express can show you their business credit rating, highlighting any warning signs early on. Importantly, you can also run credit checks on existing customers to see whether they are experiencing financial difficulties that put your business at risk.