Why cash flow management has to be the top business priority

In this time of economic uncertainty, cash flow remains the top priority for SMEs desperate to find new business leads and onboard new customers.

Why cash flow management has to be the top business priority

In this time of economic uncertainty, cash flow remains the top priority for SMEs desperate to find new business leads and onboard new customers. 

It’s positive to see the UK Government launch yet more support packages to protect businesses and jobs as we move out of lockdown. After all, Covid-19’s impact on SMEs is set to exceed £126 billion in the coming months. And, despite the recent economic signs of improvement, and the several Government-funded financial packages rolled out as part of the Spring Budget, the economic impact of COVID-19 will be vast and irreversible ‘ at least for now. 

Regardless of the crisis, it’s critical that every business has an effective cash flow management system in place. From maintaining positive business credit ratings, to securing funding and forging new business relationships, to mitigating the ever-increasing risk of late payments and keeping a business operating when times are tough, effective cash flow management is of the utmost importance and underpins any and all future successes. 

Why good cash flow is important.

Organisations of all sizes have to manage risk, and cash flow is an important metric not only to assess financial performance, but also for identifying and mitigating potential risk. When a business takes cash flow management seriously, it can more effectively meet payroll, rent, and other overhead costs. 

Companies that fail to manage cash flow may find themselves unable to access the funds needed to operate, lose out on new business opportunities, and in extreme cases face liquidation. Businesses that are proactive and due diligent can better manage their business finances, even in a turbulent marketplace.

Analysis from Dun & Bradstreet has shown that COVID-19 has created widespread supply chain disruption. With many companies experiencing huge financial loss as a result of the pandemic, a clear understanding of who a business receives payments from is essential to pre-empt and mitigate the impact of late or non-payment on cash flow.

Managing cash flow challenges

Late payments can put immense pressure on a business’s cash flow and impact financial stability. In fact, Dun & Bradstreet’s recent trade payment data shows the percentage of UK businesses paying bills on time fell from 47.3% in March 2020 to 41.8% in December 2020 ‘ indicating a tough period for SMEs who already have much less financial buffer to fall back on.

Yet, there are several things businesses can do to improve cash flow management, thus elevate the pressure that late payments can cause:

Evaluating new and existing customers can provide a full view of any potential risk involved. This can involve reviewing data such as past payment performance, credit scores, past filings and even news reports about a company you are thinking of doing business with. Armed with the right data, businesses can identify risk and prioritise collections to help improve cash flow.

Automating your credit-to-cash process can offer significant efficiencies and improve your credit and accounts receivable workflows to help get payments processed more quickly. Offering e-invoicing and online payment can also make it easier for your customers to pay more promptly. This is especially true for SMEs as 51% have offered new services because of the pandemic. 

Understand risk distribution provides a clear view of potential risks to cashflow across your supply chain, customer base and all geographic regions of operations to help inform decision-making. 

It is a crucial time for all businesses and, as a result, it’s never been more important for them to have full visibility of their cash flow – but particularly those with limited funds that have been impacted by the harsh reality of COVID-19. Having a full and transparent view of all outgoings and incomings helps businesses be on the front foot to effectively manage cash flow by assessing the effect of the pandemic and mitigating risk before it is too late.

Tim Vine
Tim Vine

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