Cashflow management is one of the main concerns for many small and medium-sized enterprises (SMEs). A steady stream of income supports day-to-day operations, invests in growth and keeps businesses prepared for the unexpected.
This blog offers strategies to help you balance your revenue and expenses, including steps to handle late payments, plan for future outgoings and stay aware of the current tax environment.
Understanding common cashflow issues
Late payments are often cited as a top reason SMEs feel pressure on their finances. According to the Federation of Small Businesses (FSB), late payments cost small firms billions of pounds each year. This impacts their ability to meet obligations, such as employee salaries, supplier payments and tax liabilities.
Another common problem arises when business owners underestimate future costs. For instance, an unexpected increase in the price of materials or sudden repairs can quickly reduce funds. Businesses that ignore accurate forecasting may be caught off-guard, especially when combined with late or inconsistent incoming revenue.
On top of these challenges, tax obligations can fluctuate. The main corporation tax rate in the UK is 25% for profits over £250,000, while a small profits rate of 19% applies for profits up to £50,000. A taper rate covers anything in between. These levels apply for 2024/25, so you should confirm which rate you will pay based on your profits. Staying aware of these thresholds allows you to plan how much to keep aside for tax payments.
Forecasting and budgeting for stability
Forecasting plays a big part in managing your finances. An effective forecast should consider both incoming and outgoing cash. When possible, use historical data from the same quarter in previous years to estimate typical spending patterns. If your business is growing, adjust your estimates to reflect that growth. Software tools can make this process straightforward, offering automated income and expense tracking alongside visual dashboards.
Budgeting is another vital technique. Start with fixed costs – rent, utilities, subscriptions and payroll – and then factor in variable costs like materials or travel. Aim to set aside a small contingency fund that covers a few months’ worth of basic outgoings. This safety net can protect you from sudden costs, such as equipment failures or economic slowdowns.
Handling late payments
Many businesses face overdue invoices, particularly from large companies with lengthy payment cycles. When bills remain unpaid, it affects the funds needed for wages, supplier costs and expansion plans. The following strategies will help to minimise this.
- Agree clear payment terms: Make sure you and your clients understand when and how payments should be made. This is especially important if you often work on short contracts or monthly retainers.
- Maintain a consistent follow-up process: Send reminders promptly once an invoice is overdue. Regular communication helps to signal that your business takes timely payments seriously.
- Consider invoice factoring or discounting: These services involve a third-party provider giving you a cash advance on invoices for a fee. They can provide a faster cash injection, though they also reduce your overall revenue.
- Stay aware of legal options: The UK’s Late Payment of Commercial Debts (Interest) Act allows businesses to charge interest on overdue invoices. You can learn more about interest charges and related provisions on gov.uk.
By tackling overdue payments as soon as they arise, you show your clients that you value your work – and that prompt payment underpins your ability to keep delivering high-quality services.
Balancing expenses and accessing finance
A well-managed approach to expenses can have a direct impact on your cashflow management. Look for ways to reduce outgoings without affecting your product or service quality. For instance, you could negotiate volume discounts with suppliers, especially if you have reliable sales data to back up your purchase levels.
If you do need extra support, consider suitable finance options. These might include the following.
- Business overdrafts: An overdraft can provide short-term flexibility, but watch out for higher interest rates if you exceed arranged limits.
- Term loans: Spreading costs across a set period can help you finance major purchases without affecting daily cashflow.
- Government-backed schemes: Check if you qualify for current government support or regional initiatives aimed at encouraging SME growth. The British Business Bank website provides a guide to various schemes that may help you.
Before you borrow, check the total cost, repayment schedule and any conditions attached to the funds. A sound plan ensures you only borrow what you can reasonably repay while maintaining enough cash for regular outgoings.
Building healthy cash reserves
A robust cash reserve acts as a buffer against fluctuating income and the occasional slow-paying client. Aim to keep funds set aside for at least three months’ worth of essential costs. You might also explore short-term savings accounts or other low-risk instruments, so you earn a small return on the money you hold. This can protect your business if you come across challenges such as a sudden drop in sales or a delay in expected funding.
Adopting digital solutions
An integrated accounting system offers better visibility over your finances. Many cloud-based platforms allow live data updates, automatic reconciliations and reminders when invoices are due or overdue. By reviewing real-time figures, you can spot trends and make decisions based on accurate information rather than guesswork.
Using digital software also supports compliance with rules like Making Tax Digital (MTD). The HMRC website provides more information about MTD requirements.
Over the long term, you will benefit from a clearer picture of your earnings, outgoings, and any patterns that might indicate growing income or possible financial strain, helping you optimise your cashflow management.
Working with trusted advisers
Cashflow magament is one of the most important aspects of business, but you do not need to tackle it alone. Our team at Business Partners can offer guidance and support based on years of experience. We specialise in helping technology firms, recruitment agencies and creative businesses. We see first hand how a steady, well-managed cashflow encourages progress and growth. Feel free to read more about our approach on our services page.
When you work with an accountant, you gain more than just a number-cruncher. You get insights on future tax obligations, suggestions on appropriate finance solutions and help with potential problems such as late payments. This holistic view supports a stable foundation, letting you plan your next steps with greater confidence.
Wrapping up
Cashflow management for SMEs relies on accurate forecasting, consistent credit control, efficient spending and building healthy reserves. A balanced approach helps you stay resilient, even when client payments are delayed or operational costs increase.
By adopting digital tools, setting clear payment terms and seeking timely advice, you can manage day-to-day demands while preparing for the future. You will also be better placed to take advantage of new opportunities, rather than having to worry about sudden expenses or shortfalls. With clear strategies in place, your business can use cashflow as a stable foundation for growth – supporting your employees, enhancing products or services and strengthening your position in the marketplace.
If you want to streamline your cashflow management and strengthen your future plans, get in touch with us to learn how we can assist. We will help you find a practical approach that keeps your business on the right path.
