Cash Flow: Common Issues for SME in Asia

Without adequate cash flow, your SME will fail. The lifeblood of any business is cash and dealing with common cash flow issues is essential for the survival of your business. For SMEs, cash flow management is different than for large corporations for two key reasons: the cost of debt is higher and the return on capital is lower.

Cash is king

SME businesses go through cyclical highs and lows. Many retailers typically have their best months in December, whilst other suppliers do well at the beginning of a school year or other seasonally driven spike in demand. A simple cash-flow analysis will quickly highlight the cycles in your SME business. This information can then be used to your advantage in many ways; timing your financing, arranging the appropriate amount of staffing, and increasing your marketing efforts during quiet periods. Cash contingency is key all year round to avoid running low on funds, creating stress, or even running out of cash completely.

Trends in Singapore

Delays in receiving payments from customers are the top financing challenge faced by a quarter of SMEs recently surveyed in Singapore. “Customers are delaying payments to them and this affects cash flow”, said one SME expert adding, “Singapore SMEs take 9.2 more days on average to collect revenue compared to their global peers.” Lack of know-how could be a reason why SMEs experience cash flow problems. “To address this, we have a support programme called the Capability Development Grant, that can help your SME engage a professional to assist your SME to structure your financial systems,” continued the SME expert adding, “managing cash flow is particularly important when an SME expands its business.

This is why an SME should invest in a system to better track where its expenses are going.” One SME leader commented, “We went into innovation. We went into inventory control, so we purchased software. We now have a CRM in place. The software is very good, and the one we got under the Capability Development Grant, actually allowed us to track our profit margin even by ingredients (and) per dish – what is the profit margin that we are getting from there.” Financial institutions in Singapore are also rolling out initiatives to better equip SMEs with financial management tools. Banks like DBS, OCBC, UOB and MayBank have various seminars and workshops that SME business owners can attend for financial management advice.

Tips for improving cash flow

Work with a good accountant

The services of an accountant can be viewed as an investment rather than an expense. An accountant can review cash-flow projections and results, provide insights into areas that you may have overlooked, and help your SME anticipate and plan for cash-flow challenges.

Speed up receipt of payments

Any steps you can take to shorten your receivables will boost your cash flow. Send out invoices immediately after the delivery of goods or services. Why not change your payment terms from 60 days to 30 days? Offering a small discount to customers who pay their bills early is a good reward strategy and charge a penalty to those who pay late.

Do a financial check on new customers before offering them credit and check their business references.

Use your business credit card

Consider using your business credit card to pay suppliers and make purchases. Learn about your card’s grace period, and make the most of it. You may have up to 21 days after receiving your statement to make a payment. Some cards also come with cash-back features so speak to your business banker about a suitable card.

Consider continuity sales

An SME can improve its cash flow by offering deals on products or services to customers who buy for a fixed period of time. A subscription-based product such as a newsletter or magazine is a good example of how continuity sales work: you pay the publisher upfront for a one-year or two-year subscription; in return you get a better deal on the cost of the newsletter. Continuity sales can be used for almost anything. Your customers save money on a package of goods or services, and you get the cash upfront.

FinTech in Malaysia

Capital Bay is a startup that aims to solve the issue of cash flow afflicting many startups and SMEs. Recent analysis shows SMEs in Malaysia now have to wait 50% longer before they can collect their invoice payments compared to just three years ago.

When SMEs supply large corporations the money doesn’t always flow back smoothly, often due to red tape and procedures that large companies need to go through before the money can be actioned. A supply-based SME without sufficient cash flow may be forced to seek financing from banks to continue covering costs, a pain point all too familiar to the three Malaysian founders of Capital Bay who have extensive backgrounds in finance. Capital Bay is attempting to provide solutions for these cash flow issues using four simple steps:

– Supplier invoices are automatically uploaded online. Easy to manage your invoices and payments online by allowing your finance team to accelerate payments whenever required by accessing our platform using just a web browser
– Select a date to receive your invoice payment. Request early payment on your invoices by selecting the date you would like to receive your invoice payments, in exchange for a small discount, any time, any day
– Buyers and Funders approve early payment. The buyer and funder will be notified of your request and will undertake the necessary approval process. You can seamlessly track the approval status and your invoice payment on their platform
– Receive Early Payment. Once approved, the invoice amount less the discount fees will be queued for payment into your bank account, while any reserve amounts attached to the invoice will be paid later

This new innovation in supply chain finance is made affordable and faster for SMEs by leveraging their customers’ credit strength for financing rates much lower than those of a traditional bank. It eliminates risk by accelerating payments and getting paid as soon as tomorrow and it is simple, with one platform connected to multiple funders and requests for funding online with just a few clicks from any web browser and you can select as many or as few invoices to send at any time. Resolving cash flow problems quickly is key for your SME business and can be done easily by surveying the market for assistance and solutions than using a mixture of strategies and personal toughness to achieve the results you need.

EzyCollect

New to the SE Asian market, EzyCollect is an account receivable software aimed to drive down your outstanding debtors. Designed to automate payment reminders in a personal (and customisable) format, it’s a great example of the new FinTech available in the market aiding SMEs.