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Impact on cashflow of SMEs during pandemic and ways to overcome.

Ways To Improve Cashflow In SMEs During Pandemic

Never take your eyes off the cashflow, because it is the lifeblood of business.

Maintaining a healthy cash flow is extremely important to run a business smoothly and efficiently. In such uncertain times of growing pandemic situations, we need to focus more on improving the cash flow in SMEs. In this article, I would try to describe 7 effective ways to maintain and enhance great cash flow

  1. Take rent, instead of buying for your SME.
  2. Offer discounts for those who pay early to you.
  3. Conduct a credit check for customers whose payment mode is not cash.
  4. Try to create a Buyer’s Association for your SME to get discounted price.
  5. Improve your inventory.
  6. Have a provision of Late Payment fees from clients who regularly default the payments.
  7. Use electronic payment systems for better Cashflow Management

1. Take rent, instead of buying for your SME.

When you take on rent for your business use, then you pay small amounts on a monthly basis. This helps to keep the debt to profit ratio in a healthy state. If you buy anything, then certainly you would have to initially invest a lot of amount into it, then your debt may rise if you don’t earn a significant profit in the upcoming business cycles. So, taking up rent, it’s significantly less risky than buying anything. Apart from this, when you buy something, maybe you would end up paying property tax or wealth tax, on the other hand, while you are using something on rent, you will be exempted from paying taxes, because lease payments are a business expense, and thereby can be written off on your taxes.

2. Offer discounts for those who pay early to you.

This is a very effective way to maintain good cash flow in SMEs. If the customer gets attracted to better offers while he clears his dues earlier than expected, then it’s a win-win situation. Both the parties are at a gain.

3. Conduct a credit check for customers whose payment mode is not cash.

So this is very much important for those customers, who take credit from you. You need to check their credit score before lending them the product. If the credit score is not up to the mark, then be sure, there is a high chance that he won’t be paying you up within the permissible deadline.

4. Try to create a Buyer’s Association for your SME to get discounted price.

So, almost all the suppliers will offer a discounted price, if you order your supplies in bulk. Then, you need to find more guys, who are ready to purchase the same category products as you, so that, you can place bulk orders each time with the suppliers. You can share the discounted price with your peer buyers group. This helps you to pay the suppliers less, and hence in turn raises your revenue for the company. So cash flow for SMEs is impacted positively.

5. Improve your inventory.

This is very much necessary to have a healthy cash flow in SMEs. You need to get rid of the products which are no more in demand and get rid of all such suppliers. No point in getting those things supplied to your warehouse where you won’t be able to clear off the stock to the buyers. In this particular scenario, we have to think rationally and not emotionally. Unnecessarily putting a lot of money to the things less in demand, will raise your debts and impact the cash flow in an adverse manner.

Read More – Lessons from COVID-19: 4 inventory management strategies

6. Have a provision of Late Payment fees from clients who regularly default the payments.

So, out of 10 clients let’s say, there would be 1 or 2 people, who would regularly default the payments and they are reluctant to change this habit. In such a situation, the best way to save cash flow is to introduce a late payment system. It can ensure that there would be a disciplined way of the transaction between the supplier and the buyer. This would help in dealing with the cash flow crisis of SMEs if arises.

7. Use electronic payment systems for better Cashflow Management

Last but not the least, this point can effectively impact your cash flow with the clients. Using an electronic mode of payment can help in a lot of ways, including better time management, better efficiency, and better handling of money. Ever since technology has evolved, the cashflow management process of an SME has become very easy and smooth. Also, we can say that using electronic media, will reduce the hectic process of handling accounts into a process that could be handled by anyone, anywhere. There are a lot of start-ups right now in India, who are helping small and medium scale businesses to get digitize themselves for the holistic betterment of everyone, the buyer, the supplier, and the clients. One such example is TranZact, which has helped over 5000 SMEs to manage a healthy cashflow.

Read More – Cashless economy: How is it important for India

Way Forward

Apart from this, there are a lot of other ways, which we can implement just to ensure better cash flow management. For instance, you can use, current account with high-interest rates, to increase the cashflow. Check with the current rates of interest in various banks, to choose the best among them. Also, you can negotiate with the suppliers to gain a reduced price, and get discounts, the same thing which you would offer your clients when they tend to pay you early. On a final note, I would like to suggest that review and update your business plans on a regular basis so as to ensure that the trends are checked before the profits and cash flow are impacted negatively. With this, signing off, stay tuned for more such articles.

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