Three ways small businesses can take control of their cash flow

Managing cash flow is one of the biggest problems small business owners face. Ian Reid from Barclaycard Commercial Payments explains how you can get your finances in order.

Managing cash flow is a persistent worry for small businesses – our recent research found that almost two-thirds of SME decision-makers say it keeps them awake at night.

Working capital management is not only stressful, but time-consuming: SMEs spend on average half a working day every week on this.

What’s more, a third (32 per cent) of SMEs admit insufficient cash has prevented them from growing their business. Of these, almost a quarter (23 per cent) were held back from investing in new technologies to support their business, and a similar proportion (22 per cent) were prevented from opening a new office or location.

Addressing these issues can seem daunting, but it needn’t be. Even implementing small changes can make a huge difference, which is why we’ve identified three ways SME owners can take control of their cash flow, allowing them to devote more time to growing their business.

Embrace new technology

There are three cornerstones of improving cash flow – ensuring that businesses are bringing in income as quickly and easily as possible, maximising every opportunity for additional sales and making sure they are not missing out on custom.

One way of generating more revenue is to embrace the latest payment technology: small businesses estimate one in ten transactions are abandoned because shoppers can’t pay the way they want to, costing SME retailers £8.7 billion a year in lost sales.

Taking payments using the latest innovation – such as contactless – will prevent customers from feeling frustrated with slow or outdated transaction methods, thus securing long-term relationships with regulars.

Gain greater control over expenses

For a small business, any unexpected cost can cause a major issue in managing cash flow.

Late, unforeseen or forgotten employee expense claims can throw a real spanner in the works when it comes to handling working capital, especially as many SMEs may not have an automated expense management system.

Having more control over out-of-pocket spending can provide a solution to this issue. Some corporate cards will allow SME leaders to set vital limits on spending, for example by only allowing cards to be used in specific countries, limiting purchases to certain merchants or turning off ATM transactions.

A corporate card programme can also help organisations track and record spending, meaning they can get an auditable statement billed directly to the company. This can give business owners much-needed oversight of how much their employees are spending in real time – allowing them to intervene should it pose any issues.

Build better relationships with suppliers

Using a credit card can allow SME owners to ensure they are consistently meeting the payment deadlines of their suppliers – even when they don’t have the cash to hand – helping to build trust in a long-term supplier relationship.

The flexibility of a credit card or transfer-to-bank product – which pushes cash straight into the SME’s bank account – can also enable small business to meet payment deadlines early, in the method suppliers prefer. This may allow them to negotiate a lower price.

Credit cards can also free up capital to cover unexpected purchases, such as buying additional inventory, sourcing extra ingredients or hiring staff ahead of a particularly busy period. It’s also vital for SMEs hoping to expand their business, giving them the working capital needed to invest in creating new products, attend trade events or move into different markets.

When faced with a number of other priorities and only a few staff members, it’s easy for small businesses owners to put off getting to grips with their cash flow. However, devoting the time to managing working capital should be seen as a key investment. Not only can it relieve real pressures and anxieties that small business owners face, it can also build better relationships with suppliers and customers. This, in turn, can allow SMEs to focus on growing their business instead.

Ian Reid is the director of small business at Barclaycard Commercial Payments

Further reading on cash flow

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