# How SMEs can improve cash flow
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-05-29
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: How to Improve Cash Flow in Your SME: Tips from Business
Meta Description: Learn essential strategies like clear payment terms, maintaining healthy relationships, tracking payments, and incentivising early payments to improve cash flow
URL: https://financedigest.com/how-smes-can-improve-cash-flowhtml

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_By_ **_Jack Seymour_** _is Business Development Manager at_ [_Pinnacle Business Finance_](https://pinnaclebusinessfinance.co.uk/) _,_

The UK’s SMEs account for over 99% of all businesses, and yet over a third of SME owners experiencing late payments claim they have to rely on overdrafts to help meet their monthly obligations.

Clearly cash flow among small to medium enterprises was a serious issue even before the effects of the coronavirus pandemic hit. In order to survive, it’s now more important than ever to address your cash flow.

**Review your payment terms**

Prevention is better than cure, so before you act on any frustrations about late payments, check first that your own payment terms are as clear as possible. Check that the wording or terminology isn’t ambiguous, and even more importantly, make any new clients aware of them. Having a link to them in the bottom of an email, or hidden in the [terms and conditions on your website isn’t](https://www.financedigest.com/long-term-investing-isnt-easy-heres-how-to-be-successful.html "Long-term investing isn’t easy – here’s how to be successful") enough; make an effort to communicate your terms to prospects and clients verbally so that everyone knows where they stand, and no party is entering a situation they can’t realistically follow through on.

It also pays (quite literally), to be [flexible with payment](https://www.financedigest.com/the-future-of-payments-flexibility-regulation-and-bespoke-models.html "The Future of Payments: Flexibility, Regulation, and Bespoke Models") type. The easier you make it for your [clients to pay](https://www.financedigest.com/impact-com-closes-2021-with-new-google-pay-integration-150m-in-funding-and-51-increase-in-clients-yoy.html "impact.com closes 2021 with new Google Pay integration, 0M in funding and 51% increase in clients YoY") you on time, the more they’ll do it!

**Maintain healthy relationships with your suppliers and clients**

This has two benefits. If you have a strong relationship with those paying you, they are more likely to pay you on time, and more likely to treat you with the respect you deserve. They understand that you provide a good service, and knowing you on a personal level makes it harder for them to [mess you around](https://www.financedigest.com/no-messing-around-with-red-hot-inflation-five-questions-for-the-ecb.html "No messing around with red-hot inflation: Five questions for the ECB"). It also means that if they’re ever in a situation whereby they simply can’t meet a payment, if you’ve cultivated an open and honest relationship with them thus far, they’re more likely to be upfront about their [problems and let you know](https://www.financedigest.com/solve-a-problem-you-know-and-live.html "Solve a Problem You Know and Live") in advance.

Having a good relationship with your suppliers is also key. Pay other people on time as you would expect to be, and if an unfortunate situation did arrive where you needed to be flexible, it’s likely they’d be more understanding.

**[Track and forecast your payments](https://www.financedigest.com/tracking-the-payments-evolution.html "Tracking the payments evolution")**

Probably the simplest rule going regarding [cash flow](https://www.financedigest.com/should-your-business-reconsider-invoice-financing-top-tips-on-why-reappraising-this-method-liberates-business-cash-flow.html "Should your business reconsider invoice financing? Top tips on why reappraising this method liberates business cash flow"), but also the most important. If you don’t have a clear view on incoming and outgoing payments, you can never be confident of cash flow, plus visibility of your accounts gives you an opportunity to streamline.

Whether you outsource this, invest in [accounting software](https://www.financedigest.com/is-your-accounting-software-holding-you-hostage.html "Is your accounting software holding you hostage?"), or simply keep your own databases in check, real-time information on outgoings and incomings, along with information on how owes you money and how long they usually take to pay, is crucial. It also helps you be more upfront with your own suppliers about when payments will be made.

**Incentivise early payments**

Creating incentives for early or prompt [payments is a good way](https://www.financedigest.com/three-ways-blockchain-is-transforming-payments.html "Three ways blockchain is transforming payments") of encouraging a larger percentage of your payers to pay on time. This could include a discount for those who pay early, or a complimentary service or product at the end of the year for those who consistently met all [payment deadlines](https://www.financedigest.com/investors-brace-for-rough-ride-as-evergrande-faces-payment-deadline.html "Investors brace for rough ride as Evergrande faces payment deadline"). Not only does this improve cash flow, it also helps you retain your best customers. These are the people you want more of as a [small business](https://www.financedigest.com/best-small-business-loans-speaks-to-fundbox.html "Best Small Business Loans Speaks to Fundbox") owner!

**Be human**

[It’s so important](https://www.financedigest.com/paternity-leave-and-why-its-important.html "Paternity Leave and Why It’s Important.") to tread the right balance when negotiating with your clients. There’s a fine line between chasing payments you’re rightfully owed, and alienating customers. At the [end of the day you’re better off with a late payment](https://www.financedigest.com/does-softpos-signal-the-end-of-payment-hardware-as-we-know-it.html "Does SoftPOS signal the end of payment hardware as we know it?") once or twice, than losing a client or customer for good.

Yes, you’re a [business owner](https://www.financedigest.com/the-top-5-demons-of-a-business-owner-and-how-to-overcome-them.html "The top 5 demons of a business owner and how to overcome them"), but you’re also a person, dealing with another person, who may have cash flow issues as well, through no fault of their own. Never [deal with late payments](https://www.financedigest.com/sabadell-in-talks-with-worldline-nexi-and-fiserv-for-payments-deal-sources.html "Sabadell in talks with Worldline, Nexi and Fiserv for payments deal -sources") when you’re angry and frustrated. Instead, take time to cool down and speak to people calmly and openly. There’s an art to knowing how and when to nudge a [customer for payments](https://www.financedigest.com/how-payment-institutions-can-leverage-data-to-support-merchant-customers.html "How payment institutions can leverage data to support merchant customers").

This is where a finance manager can be especially useful – it allows you to [protect your relationship with your clients and customers](https://www.financedigest.com/fraud-protection-why-customer-onboarding-requires-digital-identity-processing.html "Fraud Protection: Why Customer Onboarding Requires Digital Identity Processing"), by having someone else have these separate conversations with them.

It can be a tough [world out there for SMEs](https://www.financedigest.com/looking-beyond-lockdown-the-new-opportunities-for-smes-in-a-post-pandemic-world.html "Looking beyond lockdown: the new opportunities for SME’s in a post-pandemic world") right now, but if you’re looking to prioritise anything, it should be cash flow. And it can be manageable, as long as you’re organised, flexible, and tackle it head on.


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