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Advices and insights

Managing a company’s finances is no easy task. It’s even more difficult for SMEs and VSEs, especially in the current climate of inflation. Are cash flow problems threatening your company’s stability? The most obvious solutions may be the least plausible. Here are a few solutions to help you avoid the daily stress of overcoming your SME’s cash flow problems.

Seek professional help for rigorous cash management if necessary

Although you’re looking for a quick and effective solution to your cash flow problem, it’s a good idea to do a little research to identify the causes of your difficulty. Reviewing your management to identify the origin of your cash shortage is essential. This will put you on the right track to a lasting solution.

At the end of your analysis, you may discover that you’re not sending out your invoices on time. In this case, you’ll need to overhaul and optimize your invoicing and collection system. You’ll need to send out invoices quickly enough, keep track of your outstanding payments, and quickly follow up on customers who are slow to pay.

In this process, it is vital to surround yourself with professionals such as a financial advisor or an accountant. It is essential to identify the source of the problem, so that you can rigorously manage your cash flow from now on. If you fail to do so, your cash flow problems will get worse, even if you inject cash.

Consider increasing your sales

If you seem to feel that your problems are rooted in the inability of your income to cover your expenses, perhaps you should consider strengthening your marketing strategy in order to sell better.

Are your sales sufficient to cover expenses? Are your activities really profitable? If this is not the case, your cash flow is insufficient, and this can only lead to a deterioration in working capital and therefore cash flow. To boost your sales and increase your revenues, you could consider expanding your customer portfolio, launching new products and services, or offering promotions to attract more customers.

Renegotiate payment terms with suppliers

When sourcing from suppliers, take payment terms into account in the same way as other indicators, such as transfer prices. Indeed, supplier flexibility may enable you to negotiate and obtain longer payment terms. This will give you more time to generate income before you have to pay your invoices.

Maximizing your operating debt will help you avoid running out of cash very quickly. To this end, never pay your invoices before their due date, respect the contractual deadlines stipulated in your contracts with your suppliers and, above all, renegotiate due dates when legally possible.

Reduce certain production costs

In the medium term, this solution can have an impact on your cash flow problems. In concrete terms, the aim is to improve your margins so that you can breathe easier financially. Identify areas where you can cut costs without compromising the quality of your products or services. You can cut costs to save on overheads, purchasing, production, logistics, quality or R&D.

 Don’t hesitate to negotiate with suppliers without compromising product quality. You can, for example, change components or packaging, in strict compliance with specifications. You can also source new, cheaper suppliers.

Apply for credit

If you’re facing a temporary cash shortage, you may want to consider taking out a bank loan, or a short-term loan, to bridge the gap. This is valid if you know that your cash flow problems are temporary. However, make sure you carefully evaluate the conditions and interest rates before you decide.

Debt rescheduling

If your financial problem is structural, you might consider negotiating a restructuring loan. This type of financing helps to extend the repayment period and spread the debt. You’ll need to convince your banker that this will solve your cash flow problems. It goes without saying that you must also be able to justify your ability to repay the loan.

Selling non-core assets

Perhaps you should consider selling assets that your company owns, but which are not essential to its operations. Considering selling them could be a good idea, especially if it will help you generate cash.

Using factoring

Factoring is a quick and easy way to finance your cash shortfall. Also known as invoice financing, this solution is useful when you urgently need cash to take advantage of a cash advance. In practical terms, you sell your unpaid invoices to a specialized company for a certain percentage, which immediately advances you part of their value in cash.

Implement a restructuring plan

If, on the other hand, you discover that your cash flow problems are persistent and deep-rooted, you should consider the necessary restructuring of your SME by reassessing its business model and making a number of strategic adjustments. You could, for example, strengthen the quality of your product or emphasize digital communication in your marketing strategy. Perhaps you should also consider launching new products or seeking out new partnerships.

When faced with a cash flow problem, it’s easy to become disoriented, distraught and stressed. However, with method and attention to detail, you can easily identify the causes of this difficulty and take concrete action to make it a thing of the past. Actions can include renegotiating supplier payment terms, managing due dates and unpaid invoices, contractualizing or rescheduling debt. Maximizing operating debt or selling off non-essential assets are also ways of overcoming cash-flow difficulties within your SME.

Alicia Gomez - Senior Content Manager | Alicia is an author, blogger, and certified Enneagram coach with a bachelor's in Communications. She's been blogging for six years and run a consulting business offering communications, strategy. Her favorite quote: Be you. Break free. Break through.

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