Cash flow is the lifeblood of any business, especially for small and medium-sized enterprises (SMEs). Cash flow challenges can arise due to various reasons such as delayed payments, unexpected expenses, and seasonal fluctuations. However, effective cash flow management can overcome these challenges and support the survival and growth of SMEs. In this blog, we’ll explore some valuable tips to help SMEs navigate and overcome cash flow challenges.

Create a Realistic Cash Flow Forecast

A good place to start is with a cash flow forecast. A cash flow forecast is a projection of your business’s future cash inflows and outflows. It provides a clear picture of your anticipated financial situation. By creating a realistic cash flow forecast, SMEs can identify potential shortfalls and take proactive measures to address them. Whilst Excel is still a favoured tool for many cash flow forecasts, it is possible to enhance your finance function app stack to have a cash flow forecast that pulls live data from your main accounting system to refine its accuracy.

Embrace Scenario Planning

One of the core challenges with cash flow management is the unpredictability. This can be especially true when it comes to our prior point: creating a realistic cash flow forecast. The truth is that it can be impossible to predict a forecast of a business’s incomings and outgoings as there are simply too many variables and things that can change: market conditions could change, staff can leave, new competitors can enter the market, regulation can change, development time on a product may take longer, that game-changing marketing campaign you planned might not have the desired effect etc. The list is endless, but that’s where scenario planning can add an additional tool, as it allows you to look at forecasts based on different market conditions, different performance in particular areas or based on different decisions being made or scenarios unfolding. This allows you to be more prepared from a cash flow perspective if one of these forecasts becomes a reality.

Improve Invoicing Processes

As an SME, not getting paid by your clients can cause huge cash flow issues so efficient invoicing and credit control are essential for ensuring timely payments. Within your invoice templates, it’s important to clearly outline payment terms and due dates on your invoices and you may also want to consider penalty charges for late payments beyond this.

You also want to ensure that it’s as easy as possible for your customers to pay, so it’s worth considering payment solutions such as Stripe or GoCardless. Unfortunately, even with this, you may still experience payment delays so effective credit control to chase up these payments is key.

Fortunately, the majority of invoicing, taking payments and credit control can be automated through technology, to prevent manual work and errors.

Negotiate Supplier Terms

You can also alleviate cash flow pressure by looking at the other side of the coin i.e. your outgoings, and in particular, your supplier terms. It may be possible to speak with your key suppliers to negotiate more favourable terms, such as extended payment terms or even discounts for early payments. Developing strong relationships with suppliers can lead to more flexible arrangements, allowing you to better manage your outgoing cash flow.

Monitor Inventory Levels

Maintaining excessive inventory ties up valuable capital and sometimes even worse, having too much on hand can also lead to the risk of it becoming ‘dead stock’ that you can’t shift on.

Therefore, regularly assess your inventory levels and adjust orders based on demand trends. It’s often advisable to adopt just-in-time inventory practices to minimise carrying costs and free up cash for other business needs.

Manage Expenses Cautiously

In the current market more so than ever, many businesses are also undertaking cost-cutting exercises. Keep track of variable expenses that may fluctuate with changing market conditions.

However, a word of warning is that these exercises should always be treated with caution to ensure key business functions still work as intended and quality or customer satisfaction isn’t compromised. With cost-cutting exercises, it’s important to take both a short-term and longer-term view to ensure no decisions are made to free up cash in the short term that ultimately will have a disproportionate, adverse impact in the longer term.

Diversify Revenue Streams

Relying heavily on one source of income can be highly risky. If possible, you should consider diversifying your revenue streams to reduce vulnerability to market fluctuations.

This doesn’t mean you need to completely pivot your product or service but instead can mean introducing complementary products or services that will hopefully generate more consistent cash flows. If you are over-reliant on just a handful of customers, seeking to win new customers can help reduce cash flow risk also.

Offer Partial Payments or Subscription Models

For businesses that offer high-priced products or services, it’s worth considering implementing partial payment plans to distribute the revenue across multiple months. This can help provide a smoother cash flow but also reduce the risk of large bad debt.

If customers regularly use your product or need your services, it’s also worth considering a subscription or retainer model to provide more predictable revenue and cash flow.

Establish a Line of Credit

Having access to a line of credit or a business loan can also be a safety net during times of cash flow strain. However, it’s important to use credit wisely and not become overly reliant on it, as the interest and repayment can have an adverse impact on cash flow by introducing additional expenses and payment deadlines.

Build a Cash Reserve

When it is difficult to predict rainy days, having enough cash reserves to help you weather any storm is crucial. Therefore, it’s wise to allocate a portion of your profits to building a cash reserve that provides you with a runway to any adverse conditions. This emergency fund can provide a cushion during lean months, economic downturns or unexpected challenges.

Regularly Review and Adjust Strategies

Just as a cash flow forecast isn’t a one-off exercise, cash flow management isn’t either. It’s an ongoing process that requires you to regularly review your financials and adjust your strategies based on any changing circumstances. Stay informed about industry trends, economic conditions, and regulatory changes that might impact your cash flow and in turn, your decision-making.

Don’t Bury Your Head in the Sand

Lastly and possibly most importantly, don’t bury your head in the sand. If you anticipate you may have cash flow issues, it’s better to have full visibility and understand of them so you can tackle them before situations become unsalvageable.


Managing cash flow challenges is an ongoing endeavour for SMEs. By implementing these tips and staying proactive, businesses can maintain a healthier financial position, navigate periods of uncertainty, and position themselves for sustainable growth. However, it should be noted that each business is unique, so tailored and proactive advice should be sought to put your business in good stead.

Do you need help?

If you require business advice, you can contact our friendly financial experts on 0845 606 9632 or email