Effective cash flow management

Having effective cashflow management strategies helps SMEs avoid insolvency

Cashflow refers to the total amount of money going in and out of a business. According to Business Insider, 82 percent of businesses fail due to cashflow problems. A recent global Intuit Quickbooks study shows that 69% of small business owners are concerned by cashflow problems.

If COVID-19 has taught us anything in business, it’s that robust strategies are needed to survive difficult periods. Positive cashflow ensures SMEs can meet all financial obligations including supplier bills and employee wages and provides a financial safeguard for unforeseen challenges.

The main impediments to positive cash flow for SMEs

The main cash flow issues SMEs face are late payments, a lack of financial monitoring, excess stock, high overheads and rapid growth. Below are proven strategies to help your business avoid potential insolvency.

Timely invoicing and shorter terms

According to a recent report by Xero, 53 percent of SME invoices are paid late by big business. That accounts for approximately $115 billion each year, around $52,000 for every SME in Australia. Ensure invoices are sent immediately with short payment terms. Implement a process to follow up invoices immediately past due.

Monitoring and forecasting cash flow

Even profitable businesses can face cash flow problems. Monitoring your cashflow to create effective cash flow forecasts will help to predict and plan for cash flow crises. Thirty day cash flow forecasts means you know when your cash is due in, and therefore when you can realistically pay out. It helps to catch issues before they become big problems.

Avoiding excess stock and selecting clever suppliers

Some businesses find themselves with excess stock that incurs costs in storage and insurance. Effective inventory management procedures to avoid keeping too much stock on hand will help cash flow. One way to do this is to consider changing suppliers. For example, some suppliers can hold stock on your behalf or ship directly to your customers.

Ruthlessly cut high overheads

Expenses including rental costs, car leases and travel are common sources of cash flow problems, according to Fresh Books. Can your SME negotiate an existing lease or even change premises? Lease rather than purchase equipment?

Managing cash flow through periods of growth

Rapidly expanding companies paradoxically experience more frequent cash flow problems. Fast growth can mean a shortage of cash to meet expansion costs. If that’s your situation, seek professional advice to implement strategies to control growth over the long term.

Turnover is vanity, profit is sanity, but cash flow is reality

If you’re unsure on how best to manage cash flow, it’s best to speak with a trusted legal adviser to strengthen your financial strategies for the future.


Any decision that affects your business has legal implications. Contact us today to help secure your business for whatever tomorrow brings.

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