The cash flow conundrum for fast-growing SMEs


SMEs are undoubtedly a keystone of the UK's economic recovery, but recent research from venture capital investor Albion Ventures found that one in five SMEs cite cash flow as a major challenge to growth. Interestingly, cash flow concerns are far higher among firms that are increasingly confident about the future.

So what should solutions should fast-growing SMEs be aware of to help manage their cash flows?

Cash visibility, cash forecasting and liquidity planning - three words every SME should be aware of. IT2 Treasury Solutions, Treasuris and CashAnalytics are just a few providers that offer companies the tools to get a consolidated view of their cashflow, create projected financial cash flows and steer clear of liquidity problems by gaining greater visibility over future cash flows and positions. Nowadays, treasurers want a bird’s eye view of the company’s cashflow from the comfort of their iPad on their morning commute, and solution providers are stepping up to the plate.

Supply chain finance has received a lot of press attention in the last few years, even from David Cameron, but many SMEs are still unaware of the many benefits and are wary of the potentially long onboarding process.

Supply chain financing usually refers to invoice discounting and reverse factoring. Invoice discounting allows suppliers to sell their invoices for early payment, typically to a bank or factoring company, in return for a fee.

Meanwhile, reverse factoring is where suppliers take advantage of their buyers’ superior credit rating, and use their bank credit lines to finance their receivables at a lower interest rate than what they would typically be offered.

Both allow SMEs greater flexibility with their immediate cash flow, and invoice discounting is increasingly offered by non-bank providers which is great for companies that are having no joy with their bank. Reverse factoring, however, is still typically only offered by large buyers, such as Sainsbury’s or Vodafone.

Purchase order financing, or pre-shipment financing, is a relatively new option that would particularly benefit suppliers that are growing quickly, but are still concerned about cash flows. A supplier can secure financing even before the invoice stage, on the back of a purchase order, but this solution does incur higher fees. 

Take a look at IT2 Treasury Solutions or find out more about CashAnalytics.

Let us know what kind of finance you're considering by tweeting @WorkspaceGroup.

farah-khalique.pngFarah Khalique is a freelance business and financial journalist, with a keen interest in writing about non-bank financing solutions that can help SMEs grow their business. She has written extensively about banking scandals and has made TV appearances on Sky News and The Wall Street Journal Live to comment on topical issues including money laundering and bankers’ bonuses. Follow her on Twitter @FarahKhalique