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  • Gary Smith
  • November 6, 2019
  • 5 min read

8 tips for managing your SME’s cashflow

Managing cash flow is critical to the health of any business, and SMEs in particular. Successful cash flow management can mean the difference between your business thriving or failing. Read our 8 tips for successful cash-flow management.

Cash flow is key to business success, but lots of small and medium businesses still find it difficult to manage. According to the Federation of Small Businesses (FSB), around 80% of UK businesses suffer from late payments, which creates a damaging domino effect across the UK economy: 48% of invoices issued by SMEs are paid late, and as a result, more than a quarter (26%) of small business owners struggle to pay their suppliers on time.

The UK Government is Trying to Address the Problem

In his March 2019 Spring Statement, Chancellor Phillip Hammond announced plans to “tackle the scourge of late payments” by large corporations to their smaller suppliers.

He promised a “brighter future”’ for the UK’s 5.6 million small businesses, and outlined a planned requirement for big companies to improve their payment practices and report on how they’re paying their suppliers.

With late payments resulting in the closure of more than 50,000 small businesses each year, at an estimated cost of £2.5 billion to the UK economy, Mr Hammond’s announcement was long overdue and welcomed by the UK small business community.

As welcome as these new regulations are, no timeframe has yet been announced for their consultation and implementation. Even when it is, change won’t happen overnight, so SME owners should all be focusing on what they can do to improve their cash flow management.

8 Tips for better cash flow management

1. Prepare a Cash flow Forecast

One of the most difficult of all cash flow challenges is predicting what will happen in the future. While SMEs generally have a lot of control and visibility on payables and outgoing cash, it becomes much more difficult with incoming cash.

Preparing a detailed cash flow forecast should help you to anticipate inflows and outflows better. It doesn’t need to be a complicated process but preparing a cash flow forecast should give you confidence around your businesses cash position at any given time

If you’re not sure how to go about this, seek an accountant specialising in small business accounting with experience with financial modeling.

2. Review Cashflow Performance

Cashflow management is a continual process. It’s therefore important to regularly monitor and review how your cashflow is performing, at least on a month-to-month basis.

Here are some key questions to consider:

· Where are the pressure points?

· Are your customers paying on time? Do you have any “problem” customers that regularly cause cashflow headaches?

· Are you paying your suppliers on time? Can you renegotiate terms?

3. Renegotiate supplier and customer payment terms

Once you have produced a cashflow forecast and began monitoring it each month you should understand your cash flow peaks and troughs. Now is the perfect time to start talking to customers and suppliers to rearrange your cash flow cycle to best suit your business.

Don’t be afraid to set strict payment terms for customers. It might also be worth considering incentives for early payment as the benefits of increased cash might offset the lost revenue.

Think about negotiating with your suppliers to make sure your monthly cash cycle is as efficient as it can be. For example, you should always aim to get your sales receipts in before it’s time to pay salaries or subcontractors.

Without renegotiating payment terms, you can tighten up your cash position by looking at the timing of your invoice cycles.

Managing collection and payables processes more aggressively can significantly improve your cash position.

4. Maintain a Cash Reserve

This may be easier said than done, but it’s always easier to prevent a cash squeeze if you know you have an amount of cash in reserve. Every business is different, of course, but you might try to maintain a cash reserve equivalent, say, to a certain percentage of your payables.

You’re far less likely to run into cash flow problems if you have a cash reserve to draw upon, should you need it.

5. Is Your Accounting Software Up to the Job?

Accounting online is a an option for busy SME owners – but Is your accounting software appropriate to the needs of your business and does it allow you to accurately measure cashflow? Do your processes compliment your cashflow management?

Are you using digital invoicing? Sending your invoices via email should allow for faster processing than if you send them by post. And faster payment processing means improved cash flow performance.

It’s always worth trying to find software or a service provider that can take care of all your accounting and invoicing needs. This might include matching incoming payments to outstanding invoices, sending automatic reminders, or creating multiple or recurring invoices in one solution.

6. VAT management can help Your Cashflow

It’s worth spending time to review the timing of your payments to HMRC. VAT, for example, can provide a source of positive cash flow if managed correctly as it can be collected from customers in advance of paying to HMRC. Again, timing is key so talk to your accountant about VAT services such as reviewing your VAT and invoicing processes.

7. Are you simply spending too much?

It’s easy for expenses to build up, without ensuring that you’re being as efficient as possible. When was the last time you undertook a thorough review of all your expenses, from your fixed overheads to all of your variable costs? Are you getting full value for money? Can you cut back on unnecessary expenses? Are there cheaper alternatives available?

There are almost always ways that every business can reduce its expenses and improve cash flow. So, carry out a detailed review of all your expenses, and build in a quarterly or semi-annual review going forward. This is just one of the services we offer at MJH.

8. Keep a good relationship with your bank

Have you borrowed money from a bank or other lender? How much does it cost? How much of a burden does servicing the debt place on your business? There may be cheaper alternative sources of funding available, particularly if your business has grown and is more creditworthy than when you borrowed previously.

Having an overdraft facility available at your bank can also be a valuable resource, to be drawn upon on a proverbial rainy day. Even if you don’t use it, just having it there can provide a lot of comfort in case of a cash flow squeeze. Do you know your bank? If not it might be time to reach out to them.


It’s encouraging that the Government has acknowledged the problem of late payments in the UK small business sector and is taking steps to address it. But until measures are implemented, there’s still a lot that business owners can do themselves to improve cashflow performance.

There’s no easy fix to improving your cash flow, and no one-size-fits-all solution. It takes effort across several disciplines, and the right basic infrastructure to do it well.

It’s worth the effort to get an accurate handle on the cash flow dynamics in your business. Doing so can help you to measure, predict and improve your cashflow significantly. And if it helps you sleep a little easier at night, isn’t that enough of an incentive?

At MJH Accountancy, we can help you undertake a review of your cashflow situation. We’ll work with you to review your working capital position — your payables and receivables — and determine what can be done to improve cashflow. We’re also expert tax advisors who offer a range of bookkeeping services for your SME – get in touch for a free consultation today.

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