by Hlobisile Shoba, founder of Mafisa Chartered Accountants, South Africa
Cash flow, just like funding, is one of the major challenges facing SMEs globally. In this blog article, we provide you with some practical strategies you can use to help you improve your cash flow.
When I worked for one of the biggest retailers in Africa, I was quick to learn the importance of cash flow management and how it is done on a practical level. Working capital management and cash flow forecasting were of utmost importance to achieve the desired goal.
The retailer would negotiate credit terms favourable to them, say 60 days from the day the stock is delivered. During those 60 days, the stock would be sold in the first 30 days, therefore giving the retailer cash 30 days before they have to settle the account. Therefore this cash could be invested and earn interest before paying the supplier. By the time the account needs to be paid, new stock (which was to be paid for in 60 days) would be delivered, and so the cycle continued. In essence, the stock would have been sold twice before it was paid for. This was the first time I practically saw the benefit of negotiating with your suppliers and how this can positively affect your cash flow.
As a small business you probably do not have the power to negotiate such terms. However, I would encourage you to negotiate where you can. If your current payment terms are 30 days, try and negotiate for 45 days.
Below are some the strategies which can be implemented to manage your cash flow in your business:
Negotiate favourable payment terms with your suppliers
Have a cash flow forecast, preferably each week
Identify your best sources for meeting your cash requirements
Have a 90 day view of your inflows and outflows
Consider debtor factoring/invoice discounting
Cut or delay your cash fixed costs
Consider the strategies making sense for your business and most importantly involve your accountant/advisor when exploring these alternatives. In addition to that, I’d like to encourage you to gain a basic understanding of working capital best practices and adopt them to be part of your business practices.
Hlobisile Shoba is a well rounded finance professional with experience in Retail/FMCG as well as Oil and Mining sectors. She is registered with SARS as a Tax Practitioner, a qualified Chartered Accountant registered with the South African Institute of Chartered Accountants and a founder of Mafisa Chartered Accountants. She is passionate about entrepreneurship, education and youth development. You can contact Mafisa Chartered Accountants by email at firstname.lastname@example.org or email@example.com or you can visit www.mafisa.co.za
More articles by Hlobisile