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Smart Solutions For SMEs Dealing With Cash Flow Problems

Smart Solutions For SMEs Dealing With Cash Flow Problems

Poor cash flow is a reality businesses of all sizes face during seasonal fluctuations. A small business owner may experience cash flow issues due to low-profit margins, economic changes, too much inventory, or late payments.

The effects of cash flow problems can be difficult to manage, especially for small businesses with low working capital. A cash flow management strategy can help owners stabilise their cash reserves and lead to business growth in the long-term.

The following tips can potentially help solve some common cash flow problems regardless of your business’s size.

Check Your Business Plan

Cash flow refers to the movement of money within a business. Poor cash flow management may be a sign to revisit your business’s growth plans.

Focusing too much on expansion, bad inventory management, and raising prices are common causes of cash flow issues for most businesses.

Updating your business plan can help with attaining positive cash flow without dipping into personal funds.

For small business owners, business plans normally range from expansion goals to ways to gain extra cash and customers.

Revise your business plan by taking your business’s current state into account. Analyse the causes of the cash flow problems and see if there are any shortfalls you can directly adjust.

Ask yourself, ‘Do external factors cause these business cash flow problems, or are other expenses outweighing my profits?’?

By learning why you’re experiencing cash flow problems, you can gain wider perspectives on how much cash you can regain.

Reduce Expenses

Economic factors like market changes, inflation, and supply chain problems could cause poor profitability and overhead expenses.

However, this doesn’t mean external issues will always lead to not having enough cash to sustain growth.

Learning different strategies to cut down on expenses and protect your cash reserve can help prevent cash flow problems during seasonal fluctuations.

These are a few common solutions to lower expenses and continuously keep money coming in:

  • Predict the cash flow: Cash flow forecasting outlines the projected cash inflow and outflow within a month or business quarter. Forecasting your cash flow will let you know which quarters typically have cash flow problems, giving you time to prepare for it.
  • Offer payment incentives: Creating more payment terms for your customers may increase cash inflows and grow customer interaction simultaneously. Reward early payments or add fees for late payments. Consider partial payment methods or multiple payment methods.
  • Review current expenses: Check your current cash flow statement to see the largest sources of cash outflow. Review how much you’re paying each month and see whether you can adjust it to get a little more money.
  • Adjust your pricing strategy: Reviewing your current pricing strategy could help you avoid future cash flow problems. Many small business owners may need higher prices to pay bills and make profits, but check if you could lower the prices of key products without sacrificing quality.

Don’t Overextend

Many businesses make the mistake of inaccurate forecasting. This is a common cash flow problem where a business either underestimates or overestimates the demand for a product, causing a cash flow issue when the product doesn’t sell or quickly runs out.

This problem could lead to small businesses relying on business funding to keep cash coming in.

However, loan repayments could add more financial strain, especially when low cash reserves could make it difficult to repay the loan.

Review your loan payment terms and see how you can avoid falling behind on your payments.

Get Paid Faster

While flexible payment terms can help attract more customers, it can be difficult when these outstanding receivables are paid late.

Checking the causes of slow payments within your business could potentially solve cash flow problems later on.

Collecting payments may be difficult if customers aren’t incentivised to pay early or on time. This can compound when combined with common cash flow problems, like high expenses and overflowing inventory.

However, these issues can potentially be solved with the following strategies:

  • Use alternative financing: Invoice factoring is a type of alternative financing where you sell outstanding invoices to a factoring company for liquid cash. Doing so can boost your working capital and reduce cash outflows.
  • Improve visibility over finances: Avoid manually checking bank statements to verify overdue invoices by using real-time financial monitoring strategies. Note any pending invoices for raw materials or utility providers to avoid late payments.
  • Foster customer relationships: The more your customers trust you, the less likely your outstanding invoices will increase. Fostering positive customer relationships strengthens their loyalty, giving you a steady source of income.

Planning and understanding current market trends can help you regain lost cash and grow your business.

Negotiate Your Expenses

One of the main causes of cash flow issues is unnecessary business expenses.

While no business can grow completely free of cost, sticking to the necessities can help you avoid being left with less money.

These are common steps you can take to negotiate your expenses:

  • Discontinue unnecessary services
  • Reduce operating costs
  • Move to a cheaper supplier 
  • Expand to virtual services

Look At Borrowing Options

If you have exhausted other sources of cash to grow your business, you may wish to consider other borrowing options, like a short- or long-term loan.

Small business loans are generally a popular option for small businesses seeking alternative financial sources. A small business loan provides a lump sum payment in exchange for set borrowing terms.

Term loans could be essential for purchasing assets like commercial property or equipment. These loans usually have flexible schedules and competitive interest rates.

However, if other factors stop you from using term loans, these other alternative borrowing options might help your business:

  • Business line of credit
  • Merchant cash advance
  • Crowdfunding
  • Peer-to-peer lending

Remember to assess your business’s capability of repaying the loan on time before borrowing funds.

Applying for a business loan could help your business reach its goals strategically, if done in a sustainable way.

If you do need that extra cash boost, applying for a business loan at Lumi might be a valid option.

Invest In Helpful Software

Keeping track of all your business’s finances can be overwhelming, so investing in helpful accounting software might help you stay on top of your company’s performance.

Many tools exist to help you note down cash activity. These are some of their benefits:

  • Better financial visibility
  • Real-time analytics
  • Save time and funds
  • Improved decision-making
  • Streamlined financial management

Utilising helpful tools may help boost growth faster than traditional methods.


While many factors can cause cash flow problems, staying focused on set targets can help you push through challenging periods and regain success.

Reducing expenses, adopting smarter strategies, and alternative financing are a few ways to continuously expand despite various industry challenges.

Choosing Lumi may help you get started on different financing options to foster further success.

Reach out to our team via phone at 1300 005 864 or email sales@lumi.com.au. If you’re ready to apply for a business loan, click here

Post Author: Sally Le

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