Guide To Overcoming SMB Cash Flow Problems

When cash flow problems arise, they can quickly spiral out of control, threatening the very existence of your SMB and its mission.


By Luke Trickett

Healthy cash flow is a central part of every SMB. It's the heart of every business plan, the centre of all financial forecasting, and a metric that allows companies to pay bills, fund opportunities, and maintain a solid financial foundation.

But positive cash flow isn't a given in every industry — especially for more vulnerable SMBs. And when cash flow problems arise, they can quickly spiral out of control, threatening the very existence of your SMB and its mission.

Thousands of Australian SMBs encounter cash flow issues that prevent them from reaching their goals. These cash flow challenges could devastate brands and their bottom lines, from poor accounting practices to unpaid invoices. Without outside help or guidance, SMBs may be forced to seek restrictive finance options — or close their doors forever.

Fortunately, to know thy enemy is half the battle. We'll take a closer look at business cash flow problems affecting Australian SMBs, evaluate statistics, provide solutions, and suggest ways digital platforms like Marmalade can help.

Business cash flow problems? You're in good company

If you're feeling the stress of negative cash flow in your SMB, know that you're not alone. More than one million Australian businesses struggle with cash flow issues, most of which stem from late invoice payments. And considering that 99.8% of all Aussie businesses.) are considered Small Medium Enterprises (SMEs), that's nearly 50% — a considerable 1 in 2.

Negative cash flow is the number one issue faced by Australian SMBs. As of recent estimates, more than $76 billion in outstanding payments are owed to small and medium-sized brands across the country.

But the statistics don't stop there:

Unfortunately for SMBs, cash flow issues usually get much worse before they get better. That's why identifying potential problems in their earliest stages allows you to get ahead of the curve and protect your bottom line.

Common reasons for cash flow problems in SMBs

Many business owners encounter similar cash flow concerns along their entrepreneurial journeys. While some obstacles are associated with individual industries, others are universally experienced by SMBs around the country.

Here's how to identify cash flow problems that frequently occur in SMBs:

  • Poor cost analysis — Young startups often underestimate the funds they need for their SMB. Today more than 53% of business owners say they misjudged their costs during the first year of business. An unrealistic expectation of SMB expenses will put undue pressure on positive cash flow and potentially bleed your company dry over time.
  • Inadequate pricing strategies — Along with costs, SMBs must also account for their goods and services revenue. If you don't charge enough for your offerings, you'll struggle to reach profitability and achieve positive cash flow. But if you charge too much, customers will purchase from competitor sources or simply ignore your offerings.
  • Misunderstood timelines — And speaking of revenue, many SMB owners don’t realise how long it takes to turn a profit. The safest bet of SMB profitability suggests it might [occur within the four-year mark with 68% of businesses reaching profitability in the first year. If you're not prepared to wait for success, you may want to reassess your options.
  • Insufficient cash flow reports — SMBs rely on positive cash flow to maintain day-to-day operations. If your accounting practices are less than excellent, they will show in your cash flow reports, making it challenging to identify potential issues before they grow out of control.
  • Unpaid invoices — This is one of the most common and universally frustrating cash flow problems affecting modern SMB. When customers don't pay their invoices on time, it can severely strain your working capital. It will also make it challenging to expand both internally and externally.

As you can see, cash flow problems for SMBs are both dangerous and widespread. They are particularly challenging for startups and younger SMBs that are more vulnerable to financial instability during early growth.

To stave off possible challenges, some SMBs turn to alternative forms of cash to bridge the income gap — including traditional business finance options.

Unfortunately for SMBs, cash flow issues usually get much worse before they get better.

How small business financing impacts cash flow problems

Almost all SMBs will face challenges along their journey. Some may need to look at financing options through traditional outlets when cash flow gets tight and your reserves dry up.

Business loans are one of the most common forms of cash flow financing. Lump sum loans provide a contractually agreed upon amount in exchange for a set cadence of repayments, plus interest.

However, this type of cash flow funding is not without its expenses (nor is it guaranteed). Your financing application may even be rejected depending on your credit score and the lender's opinion of the workings of your SMB. If you put all your eggs in one basket, you may be forced to scramble when the ‘carton’ gets snatched.

For these reasons, many brands prefer to take out lines of credit instead. These can come in handy when you need quick cash or a small loan. You only pay interest on the money you borrow and can finance various smaller transactions without taking out a larger loan.

But credit cards or lines of credit aren’t a perfect solution in any way. The interest rates could cost you a pretty penny, and the regular repayment schedule may not fit well with your current cash flow situation.

In a worst-case scenario, SMBs can turn to invoice financing to access a portion of their missing income. This is far from ideal, as you can only receive a portion up front — maybe 80% at best. The remaining amount will only be handed over after your invoices are paid by the customer.

The hidden and restrictive expenses of traditional cash flow options are impossible to ignore. And thanks to their higher levels of risk, they may not be worth your time, money, or hassle.

It may be time to look at more innovative and cost-effective ways to fix your cash flow problems. This begins by understanding modern solutions and the platforms to implement them correctly.

How to fix cash flow problems in your SMB

Now that you're familiar with the risks and problems caused by cash flow issues, you can move on to the essential part of the equation: fixing them for good.

This begins by making critical changes to your current strategy and then implementing specific platforms and solutions that are proven to make a difference.

Here are some cash flow solutions for your SMB.

Investing in accounting software

When it comes to cash flow problems and solutions, accounting software will be your best friend. Cloud-based software was designed to simplify the management of your finances while helping SMBs remain compliant with tax laws.

Several accounting software solutions are available on the market, many of which come with native features that address cash flow concerns. Xero is an example of an excellent solution for SMBs and provides plenty of resources for cash flow reports, forecasts, and more.

Regardless of the software pick, be sure your solution has plenty of third-party integrations. The right platform will save you time, money, and plenty of headaches down the road.

Reducing margins of growth

Growth is generally a positive indicator for your SMB, but too much too quickly can significantly cut your cash flow expectations. When demand for your inventory suddenly skyrockets, it can be challenging to keep up with production costs and pay your other bills on time.

Start by evaluating your margins of growth. How much can you increase production without sacrificing quality or going over budget? What will be your tipping point for profits this quarter? You may want to evaluate your highest overhead expenses and how they might increase as you grow.

If there's no expected growth in the foreseeable future, consider some ways to reduce your current margins. Try renegotiating current contracts, downgrading your office space, or cutting back on unnecessary expenses.

When it comes to cash flow problems and solutions, accounting software will be your best friend.

Increasing payment options

Since late payments cause so many cash flow issues, increasing your invoice payment options is a surefire way to boost remittance rates. This will also improve your cash flow by encouraging customers to pay as soon as possible.

There are many ways to go about this, but the most common is to offer an online payment portal that acts as a one-stop shop for all customers. This portal can be integrated directly with your cloud accounting software for ease of use. Be sure to offer various popular options, including bank transfers and credit card payments to allow your customers to pay in a way that best suits everyone.

Fixing your unpaid invoices

Unpaid invoices can wreak havoc on your SMB. Not only does it limit your liquid funds, but it can put a significant strain on your partnerships and professional relationships.

Fortunately, there are proactive steps you can take to keep unpaid invoices from impacting your company's success. Instantly getting cash for your invoices is one of the best ways to do this, especially with minimal fees and zero credit risk.

How, you might ask?

It all starts with Marmalade.

How faster invoice payments can reduce the effects and causes of cash flow problems

Built for Australia's hardworking SMBs, Marmalade is a world-first invoice payments platform that doesn't require extensive paperwork, enormous fees, or long waiting periods.

Marmalade isn’t a loan. It’s a simple and cost-effective way to access your money for your issued invoices — for only a small one-off fee and at zero interest.

You can get up and running with Marmalade in just four simple steps:

1. Sign up and create your Marmalade account

You'll get your current workflows connected to Xero and set up your invoice templates within our system.

2. Issue all new invoices with your Marmalade account details

This ensures you have the opportunity to cash-in all of your invoices, preparing you to take action against potential cash flow squeezes.

3. Cash-in any eligible invoice

There are no commitments when it comes to cashing-in your invoices with Marmalade. You choose the invoices you wish to cash-in and those you don’t. Simply select the invoices you wish to cash-in, review the associated one-off fee of between 3-5% and your money will be with you within 24 hours — guaranteed.

4. Access your funds

The funds will be deposited into your account within just one business day. That means 24 hours or less from Monday to Friday!

Marmalade is the smartest and fastest way to get paid.

Crush cash flow challenges for small businesses with Marmalade

Cash flow problems are some of the biggest challenges facing SMBs. But armed with the right tools, talent, and tech, staying ahead of the curve will be made much simpler. And when you team up with the crew behind Marmalade, you'll be one step ahead of late payments curveballs.

Ready to see the Marmalade difference in your SMB's cash flow? Getting started is easy and, most importantly, budget-friendly.

Contact Marmalade today to discuss our use cases for your Australian brand. Alternatively, you can sign up by completing the online form today.