Cash Flow: Common Issues for SME in Asia

Without adequate cash flow, your SME will fail. The lifeblood of any business is cash and dealing with common cash flow issues is essential for the survival of your business. For SMEs, cash flow management is different than for large corporations for two key reasons: the cost of debt is higher and the return on capital is lower.

Cash is king

SMEs in Malaysia experience cyclical highs and lows. Many retailers typically have their best months in December, while other suppliers perform well at the beginning of the school year or during other seasonally driven spikes in demand. A simple cash-flow analysis will quickly highlight the cycles in your SME business. This information can then be used to your advantage in several ways, such as timing your financing, arranging the appropriate amount of staffing, and increasing your marketing efforts during quieter periods.

Effective finance for business owners is crucial; maintaining a cash contingency throughout the year is essential to avoid running low on funds, which can create stress or even lead to a cash shortfall. Understanding various methods of financing a business can help you navigate these cycles effectively. Engaging a business finance manager can optimise your finance business processes, ensuring that you have the right resources in place to capitalise on peak periods and manage low seasons. If you find yourself in need of capital, exploring options on how to finance business expansion can provide the necessary liquidity to support your growth objectives.

Trends in Singapore

Delays in receiving payments from customers are the top financing challenge faced by a quarter of SMEs recently surveyed in Singapore. “Customers are delaying payments to them and this affects cash flow”, said one SME expert adding, “Singapore SMEs take 9.2 more days on average to collect revenue compared to their global peers.” Lack of know-how could be a reason why SMEs experience cash flow problems. “To address this, we have a support programme called the Capability Development Grant, that can help your SME engage a professional to assist your SME to structure your financial systems,” continued the SME expert adding, “managing cash flow is particularly important when an SME expands its business.

This is why an SME should invest in a system to better track where its expenses are going.” One SME leader commented, “We went into innovation. We went into inventory control, so we purchased software. We now have a CRM in place. The software is very good, and the one we got under the Capability Development Grant, actually allowed us to track our profit margin even by ingredients (and) per dish – what is the profit margin that we are getting from there.” Financial institutions in Singapore are also rolling out initiatives to better equip SMEs with financial management tools. Banks like DBS, OCBC, UOB and MayBank have various seminars and workshops that SME business owners can attend for financial management advice.

Financial institutions in Singapore are also rolling out initiatives to better equip SMEs with financial management tools. Banks like DBS, OCBC, UOB, and Maybank offer various seminars and workshops that SME business owners can attend for financial management advice. These resources are invaluable for understanding methods of financing a business and exploring SME financing options. Engaging a business finance manager can also help optimise your finance business processes, ensuring that you have the right strategies in place. If you find yourself in need of finance for business, seeking guidance on how to finance business expansion can provide the necessary support for sustainable growth.

Tips for improving cash flow

Work with a good accountant

The services of an accountant can be viewed as an investment rather than an expense. An accountant can review cash-flow projections and results, provide insights into areas that you may have overlooked, and help your SME anticipate and plan for cash-flow challenges.

Speed up receipt of payments

Any steps you can take to shorten your receivables will boost your cash flow. Send out invoices immediately after the delivery of goods or services. Why not change your payment terms from 60 days to 30 days? Offering a small discount to customers who pay their bills early is a good reward strategy and charge a penalty to those who pay late. Implementing these strategies not only enhances your cash flow but also strengthens your finance business processes. Engaging a business finance manager can help streamline these processes, ensuring that your SME is well-equipped to handle its financial obligations. Understanding various methods of financing a business can also empower you with options to improve liquidity.

Do a financial check on new customers before offering them credit and check their business references.

Use your business credit card

Consider using your business credit card to pay suppliers and make purchases. Learn about your card’s grace period, and make the most of it. You may have up to 21 days after receiving your statement to make a payment. Some cards also come with cash-back features so speak to your business banker about a suitable card.

Consider continuity sales

An SME can improve its cash flow by offering deals on products or services to customers who buy for a fixed period of time. A subscription-based product such as a newsletter or magazine is a good example of how continuity sales work: you pay the publisher upfront for a one-year or two-year subscription; in return you get a better deal on the cost of the newsletter. Continuity sales can be used for almost anything. Your customers save money on a package of goods or services, and you get the cash upfront.

Implementing continuity sales not only supports immediate liquidity but also strengthens your overall finance business process. For SMEs in Malaysia, understanding various methods of financing a business can further bolster cash flow management. Engaging a business finance manager can help streamline these initiatives and ensure that you have the right strategies in place. If you find yourself in need of finance for business, exploring SME financing Malaysia options can provide essential support for your growth and expansion strategies, allowing your business to thrive.

FinTech in Malaysia

Capital Bay is a startup that aims to solve the issue of cash flow afflicting many startups and SMEs. Recent analysis shows SMEs in Malaysia now have to wait 50% longer before they can collect their invoice payments compared to just three years ago.

When SMEs supply large corporations the money doesn’t always flow back smoothly, often due to red tape and procedures that large companies need to go through before the money can be actioned. A supply-based SME without sufficient cash flow may be forced to seek financing from banks to continue covering costs, a pain point all too familiar to the three Malaysian founders of Capital Bay who have extensive backgrounds in finance. To alleviate these challenges, Capital Bay provides innovative solutions that streamline the finance business process for SMEs. By focusing on effective methods of financing a business, we empower SME owners with the tools they need to manage cash flow more effectively. With the support of a knowledgeable business finance manager, SMEs can better navigate their financial obligations. For those in need of finance for business, Capital Bay offers tailored SME financingoptions designed to support business expansion and growth.

– Select a date to receive your invoice payment. Request early payment on your invoices by selecting the date you would like to receive your invoice payments, in exchange for a small discount, any time, any day
– Buyers and Funders approve early payment. The buyer and funder will be notified of your request and will undertake the necessary approval process. You can seamlessly track the approval status and your invoice payment on their platform
– Receive Early Payment. Once approved, the invoice amount less the discount fees will be queued for payment into your bank account, while any reserve amounts attached to the invoice will be paid later

This new innovation in supply chain finance is made affordable and faster for SMEs by leveraging their customers’ credit strength for financing rates much lower than those of a traditional bank. It eliminates risk by accelerating payments and getting paid as soon as tomorrow and it is simple, with one platform connected to multiple funders and requests for funding online with just a few clicks from any web browser and you can select as many or as few invoices to send at any time. Resolving cash flow problems quickly is key for your SME business and can be done easily by surveying the market for assistance and solutions than using a mixture of strategies and personal toughness to achieve the results you need.

Resolving cash flow problems quickly is crucial for your SME business and can be achieved easily by surveying the market for assistance and solutions, rather than relying solely on a mix of strategies and personal resilience. With effective SME financing options available in Malaysia, you can streamline your finance business process and enhance your cash flow management. Collaborating with a knowledgeable business finance manager will help you navigate the intricacies of financing, ensuring your SME is well-equipped to thrive in today’s competitive environment.

EzyCollect

New to the SE Asian market, EzyCollect is an account receivable software aimed to drive down your outstanding debtors. Designed to automate payment reminders in a personal (and customisable) format, it’s a great example of the new FinTech available in the market aiding SMEs.