The top 5 SMB cash flow mistakes and how to avoid them

Last year, 70 percent of SMBs reported having difficulties with cash flow and 40 percent failed altogether...


By Luke Trickett

Invoice payments have always been one of the biggest pain points for SMBs. However, since the pandemic, this issue has intensified, with SMBs being the hardest hit over the last two years, in part due to the late and non-payment of invoices.

Last year, 70 percent of SMBs reported having difficulties with cash flow and 40 percent failed altogether. And of the new businesses started 4 years ago, almost half (46 percent) are no longer operating. It’s clear finding reliable solutions for SMBs is vital to business survival, but where do struggling business owners start?

Here are a few tips to help you avoid common cash flow pitfalls:

1. Don’t rely on credit

It can seem all too tempting, when you’re waiting for invoices to be paid, to start putting your business finances on personal or business credit cards. However, doing so can come at a huge cost. More than one third of Australian SMBs have already dipped into their personal savings to deal with business cash flow issues. Likewise, small business loans offer big money, but come with risks. There are roughly 260,000 small business loan applications per year (715 per day), yet only 182,000 are approved. Business loans can also have high fees and interest rates and, in some cases, put your assets on the line. Therefore, relying on credit to survive while you wait for invoices to be paid should always be a last resort!

2. Put measures in place to ensure your invoices are paid on time

The biggest reason for cash flow difficulties for SMBs is, without a doubt, late or unpaid invoices. Research from Xero shows that, on average, 53% of invoices are paid late in Australia and businesses are constantly owed an average of $38,000 each, totalling a staggering $76 billion worth of outstanding invoices. Firstly, make sure you put business process management practices into place, that ensure your invoices are sent consistently, on time and have firm payment terms. Likewise, don’t be afraid to set invoices reminders within your accounting software, and follow up consistently. However, if those measures still don’t work, there are other solutions to get paid on time. Financial tools now exist, which empower your business to be paid, when you want. However, when searching for a tool for your business, be sure to look for one that is low risk, is not just another lender to your business, provides fast access to funds, has transparent pricing and integrates into your current systems. Marmalade is an example of one of these businesses.

3. Be careful when choosing a finance solution

There are a myriad of options out there nowadays, when it comes to financing your business. However, be careful when it comes to signing away one of your most important assets. Your decision should ultimately come down to a risk analysis of each option, where you decide what you’re willing to stake for business finance. Certain options, such as invoice factoring, require you to sign away all of your receivables, which is a huge business risk to take - and remember borrowing against unpaid invoices is not the same as having those unpaid invoices paid. Look for providers who let you easily come and go, as it suits you and who don’t charge exorbitant fees or interest.

4. Reassess your business costs

Ironically, the pandemic has provided small businesses with some relief when it comes to expenses. In the past two years, many businesses have gone digital-first or decreased their office size to suit hybrid or occasional work, to reduce overheads. Likewise, expenses such as travel budgets, catering or certain work equipment might be less vital in the new work from-home world. Reassessing your business budget to evaluate what is truly essential, could provide you with the temporary relief needed during a cash flow bind.

5. Don’t miss out on growth opportunities

Late and unpaid invoices cause cash flow problems, which inhibit business growth and prevent leaders from taking opportunities that could have a huge overall impact. For labor hire businesses for example, lack of cash flow can result in an inability to take on new contracts, which require staff to be paid upfront. Likewise, building and construction businesses might be limited when it comes to buying inventory, supplies and materials due to limited cash flow. If unpaid invoices are harming your business or preventing you from growing, then an invoice payment service can fix the problem and prevent it from occurring again.

Remember, loans do not make unpaid invoices, paid invoices, they just shift the cash flow problem into the future.

At the end of the day, if your invoices aren’t being paid in a reliable manner, your cash flow won’t be in check and your business is unlikely to survive. Taking the necessary steps and measures now, will ensure you don’t reach that point.

This blog article was produced in partnership with Oneflare.

Oneflare is an Australian, digital marketplace that connects quality Aussie businesses with genuine customers. They match customer job requests with personalised quotes from local experts in real-time. The Oneflare apps simplify the hiring process for customers while increasing local experts' ability to win work.