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Finances: managing cashflow

As companies bill faster and take longer to pay, SMBs are open to cashflow problems as the downturn affects companies. HSBC Commercial Banking gives some tips on maintaining cashflow.

The UK's SMBs are being hit by a pincer movement of suppliers billing quicker and fewer companies paying within agreed payment terms, according to new research from HSBC Commercial Banking. It is urging businesses to review their finances to ensure they have the best tools in place to manage their money, whether they trade solely in the UK or do business across the globe.

The research found that one in five (18 per cent) small businesses reported suppliers are billing quicker and a further 20 per cent said that fewer companies are paying within agreed payment terms (20 per cent). This research reflects figures from the Federation of Small Businesses showing that large firms are delaying invoice payments to smaller firms.

20 per cent of SMBs said that fewer companies are paying within agreed payment terms

Yet, according to the survey, among senior decision makers of 596 small and medium-sized companies, many SMBs are overly reliant on their savings and overdraft to fund both cashflow and big purchases and business investment. It found two fifths of SMBs (40 per cent) are raiding savings and a quarter (24 per cent) relying on overdrafts to manage their everyday finances. Meanwhile, nearly one in five (18 per cent) used their overdraft to fund big purchases, such as business vehicles and equipment, with 11 per cent turning to their credit card for business investment.

The research found that one in 10 are already using invoice finance to actively manage their cashflow while nine per cent are using leasing finance to help capitalise on their assets.

Asset finance

HSBC head of commercial finance for Europe, Noel Quinn, said: "We are urging businesses to talk to their trusted advisers to ensure they have the right financial tools in place for the current environment.

Many SMBs are overly reliant on their savings and overdraft to fund cashflow

"Our research tells us that many are still turning to their own personal wealth or overdrafts to fund their businesses and there are often more suitable solutions. Asset finance can help companies to capitalise on their assets when borrowing for growth and international expansion, while invoice finance can remove the headache of late payments and debt collection.

"Quicker billing and longer payments can put pressure on small businesses and form an unsustainable cycle but SMBs can break this cycle. Some may benefit from a review with their business bank and our experienced relationship managers are working in partnership with businesses to help assess their financial requirements and help them on the right path."

HSBC Commercial Banking has a range of online resources to help businesses looking for more information on managing their money, as well as guidance on forward planning and risk assessment to get ahead in business. www.hsbc.co.uk/business

Managing your finances

Forward planning with your cashflow

• Keep cashflow budgets up to date, focus on receiving payment for sales, avoid unnecessary or excessive expenditure, and arrange appropriate financing before you need it.
• Do not assume payments will be received on time, tie up excessive cash in working capital, and overtrade by accepting orders you cannot finance.

Controlling budgets

• Focus on key indicators which have a significant effect on performance, use budgets to anticipate problems, regularly review performance and find reasons for variances, use budget control as a prompt to action, and revise budgets as more up-to-date information becomes available.
• Do not confuse changes in timing with permanent changes to the levels of income or expenditure.
• Do not ignore favourable variances without finding an explanation.

Managing debt risks

• Chase debts as soon as they become due, try to resolve the problem if there is a genuine dispute, use firm but friendly telephone calls, keep records of everything that is said and who you are dealing with.
• Do not accept excuses at face value without establishing what will happen next, offer further credit to customers who are not paying and take legal action if the debtor is unlikely to be able to pay.

Making large business purchases

• Consider all the funding options available such as leasing, hire purchase, loans and mortgages
• Do not tie up your personal wealth and overdrafts making long term purchases, use asset finance options instead and free up your overdrafts for short-term requirements.