A Little Insight Goes A Long Way

by Estefania Gual on Aug 23, 2018

Engaging the SME customer & Improving Cash Flow

The number one aim of small businesses is to become profitable, and quickly. By nature, a small enterprise will have seasonal ups and downs and a cash cycle dictated by factors beyond their control, so ensuring they have enough cash in hand is critical. Profitable companies might see their cash reserves affected if they are moving too fast, and stagnating companies might find an unexpected liquidity issue unsurmountable.

Their issues, however, don’t stop there as they continue to be very much on the back foot when it comes to sourcing the help they need from their bank or any other financial institution, often relying heavily on credit lines for a wide variety of purchases and payments and other types of financial aid to support them as they grow. New businesses may find lenders to be most scarce when credit is most necessary; not having a credit history makes them a risk some banks are unwilling to take. Entrepreneurs, freelancers and seedling companies have long been grouped with the individual, being banded together with solutions for the retail customer whose needs are incomparable with the financial needs of a business venture in its early stages.





Cash availability has a direct impact on how fast a company can reach its own financial objectives and how long the business can stay afloat. Being able to plan ahead to maintain a certain level of liquidity is paramount to success. But what do we need to take into account?

Cash flow

Cash flow is technically the difference between the amount of cash the company has at the beginning of an accounting period versus the amount of cash it has at the end. Typically cash flow describes the past, but there are also ways to predict cash flow for the near future. One option is to analyse patterns or trends within your business. Recurrences in incomes and expenses can be identified, so basing our estimations on calculations and historical behavior is a fairly foolproof way of predicting the future. Another option that might be even more relevant depending on the type of business would be to take future invoices and bills into account in order to estimate future cash flow. Depending on the country, invoices and bills can be paid up to 90 days after issue, and as a result businesses can plan ahead for the next 2 to 3 months. Estimating cash flow for the near future using these parameters can help the business gain a deeper understanding of the next concept: Liquidity.


This refers to the amount of cash an organization has to cover its immediate and short-term obligations. Costs might rise at any moment, so having a certain level of liquidity is the key to keeping a business up and running. There are also other related KPIs, such as optimum cash balance, which differs depending on the business, but that can normally be calculated by taking expenses for the next 2 months into account.

Businesses can use this as a point of reference in most cases. For example, if current liquidity is below the optimum cash balance, this might be considered a warning sign that further analysis is needed. Profit: This refers to the surplus that remains after all expenses are deducted from revenue, and relates directly to the profitability of the business. Of course, we know that in practice, that all of the above terms are interrelated. Where businesses lack funds to cover payments, liquidating assets can be a saving grace to help boost cash flow, meaning the more liquid said assets are, the better, as they are more easily “cashed-in” when money’s tight.

It might be that a business is positive in cash flow and liquidity, without that necessary translating in profits- having enough cash to cover expenses now does not a profitable company make, if overall costs are greater than revenue.Although the theory sounds simple, the reality is that many companies face financial challenges.




The objective of a business is always to achieve maximum growth, but this can be also seen as a solution to face future cash flow problems.

Discounts: A first option to increase current cash flow might be to incentivize early payers. By offering discounts to customers, they are most likely to pay early to take advantage of the reduction in price, and the business will reduce billing cycles.

Collect invoices: the process of collecting receivables takes time, and that implies considerable time with less cash flow in a company’s business account. There are several options available to help accelerate this process: centralizing operations with a bank, asking customers to pre-authorize checks and even reducing transfer costs for your customers

New customer acquisitions: the first step in increasing sales should be to build the customer base, though converting a prospect into customer is not always simple. However hard, onboarding new customers is a sure way to boost current cash flow.

Increase existing sales: selling more to existing customers is a huge help and should be not expensive. These sales must be not in credit, however, as in this case the business would only increase their receivables but not increase cash flow.

Control credit extensions: keep one eye on customers before extending credits, otherwise this might turn into a liquidity issue for your business if they don’t pay on time. It’s always good to cross-check references, and even accept credit cards .

Loans: liquidity problems may sometimes need help from a financial institution. Credit lines, equity loans or even long-term loans might be options depending on the time in business and amount needed.

Want to find out more about engaging your SME customers? Check out our white paper "Harnessing the Power of Insights - How to leverage data to help SMEs grow"


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Estefania Gual
Estefania Gual

Estefania provides product vision and strategy based on an in-depth understanding of customers and the needs of the market. With additional experience in the sales area, and having worked for leading digital core banking software and consulting firms before joining Strands, she has extensive experience in offering high-quality technical and business insights.

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