What To Do as an SME When Cash Flow is Slow but Progress is Fast

When cash flow is slow, it can be a nightmare for a small business, especially when progress is faster than anticipated. This can lead to missed payments and poorly-managed critical operations, but there are solutions, such as tightening payment terms and supplier negotiation.

Cover Gaps with Financing

It is common for growth to outpace cash when business is expanding, causing issues with paying for work and receiving payment, and this can cause critical setbacks. However, there are options such as bridging loans that can help you with immediate expenses, such as payroll and inventory. In fact, there are some services, such as invoice factoring, that can help you unlock the value of an invoice as collateral, helping you stay in business without depleting reserves.

Tighten Service Payment Terms

One of the most powerful tools a small business has is reducing the time it takes to get paid after work is done. Leaving this too long is one of the biggest mistakes that small and medium ventures make, and it leads to bigger problems down the line, such as missed payments altogether. The shorter the gap between completed work and invoicing, the higher the chance of being promptly paid. It helps to use quick payment gateways and enforce payment terms.

Use Rolling Forecasts When Cash Flow is Slow

Reactive management isn’t sustainable for long-term business, and you eventually need to switch to proactive methods. This is one of the most powerful tools you have for optimising your business finances for growth when demand and pace are picking up. One of the best methods is rolling forecasts that can be updated weekly. With a 13-week forecast, it is possible to highlight gaps in funding 6 to 8 weeks in advance, allowing you to secure extra funding.

Negotiate Longer Supplier Terms

Suppliers are running a business just like you. However, they are often willing to negotiate terms if they know you are struggling. At the end of the day, they would rather keep you as a customer instead of losing you, even if they get paid a little later than usual. Of course, you must discuss this with them first before paying late. Late payment to suppliers without prior arrangement will result in enforcement on their end, and they might also cut ties with your business altogether.

Cut Non-Essential Spending

Every business spends more than it should on things they don’t need. Extra office supplies, unused software subscriptions, and DEI programs! There are always costs that can add up to some pretty hefty outgoings if not managed carefully, and the business can suffer as a result. To reduce your business costs, consider an internal audit that checks every expense and considers if changes can be made to ensure business funds stay where they are genuinely needed.

Summary

You can use specific finance products to cover gaps, such as bridging loans. It is also a good idea to implement a 13-week rolling forecast to foresee upcoming expenses and income, and there are almost always extra costs in a business that can be safely and reasonably cut.

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