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According to A recent surveysmall business owners are more optimistic about the economy and the performance of their corporations. The MetLife and U.S. Chamber of Commerce Q2 2024 Small Business Index shows that 36% of small and medium-sized businesses imagine the U.S. economy is in fine condition and 42% say their local economy is healthy – in each cases, this number increased by 12% in comparison with the last yr. 73% of small and medium-sized businesses said their cash flow is currently good, an increase of 6% in comparison with the end of 2023.
However, 55% of small and medium-sized businesses said that inflation is still the biggest challenge they face. If your business continues to struggle to regulate costs and customers grow to be increasingly price-sensitive, you could also be at risk of running out of cash. Fortunately, the latest economic data seems to point that inflation is coming down quickly. The Fed lowered rates of interest in September, aiming to assist the economy achieve a soft landing and overcome inflation without slipping into recession.
Lower borrowing costs and lower inflation in a soft-landing economy can be great news for small and medium-sized businesses. But even if your company is currently in a good cash flow situation, this may occasionally be a great opportunity for small and medium-sized business owners to take a second look at their cash flow management practices.
Let’s explore why SMBs must act now to extend cash flow, keep their businesses profitable and support growth in 2024 and beyond.
Why are small and medium-sized corporations exposed to greater risk?
Small and medium-sized enterprises, because of their size, are normally more exposed to the risk of cash flow shortfalls than large enterprises. Here are the three fundamental reasons:
More difficult access to credit: Small and medium-sized businesses do not profit from traditional bank loans and may find it difficult to access reasonably priced lines of credit. Federal Reserve 2024 A survey of small business loans among employers found that 29% of small businesses had difficulty accessing credit in the last 12 months. With a lack of access to credit, it’s no surprise that the Fed study also found that 49% of small businesses experienced uneven cash flow and 52% had difficulty paying operating expenses.
Slow and late payments: Unfortunately, small and medium-sized businesses are also vulnerable to the vagaries of late payments and late-paying customers. Fed Small Business Lending Survey found that 39% of small businesses said they’d experienced issues related to customer slowness in payments, and 18% reported issues related to billing delays or availability of funds.
Seasonal Cash Flow Trends: Smaller businesses that rely on seasonal income may be at greater risk of cash flow problems. For example, clothing distributors and manufacturers may see a surge in demand ahead of the holiday retail season, while gardening supply corporations may see lower revenues during the winter months. Seasonal cycles make it particularly necessary for small and medium-sized businesses to build cash flow resilience and maintain adequate working capital throughout the yr.
Despite the challenges of managing cash flow, small and medium-sized businesses are not helpless. They have several powerful benefits and resources at their disposal to beat cash flow challenges.
How small and medium-sized businesses can overcome cash flow challenges
Here are some cash flow management strategies that more small and medium-sized businesses should consider as a part of improving their company’s financial performance.
Please check your payment terms again: Smaller corporations thrive on customer relationships, but sometimes their goodwill and generous payment terms are exploited by slow-paying customers. For small and medium-sized businesses, it is vital to strike the right balance between an comprehensible focus on customer retention and the must implement realistic payment terms and a courteous (but firm) collections policy.
Build on customer relationships: Some customers may not realize that their slow payments or generous payment terms are becoming a problem for your business. Communication is critical. Small and medium-sized businesses should explain to customers why on-time payments are critical to the health of their business and their ability to proceed to be good partners. Look for ways to supply discounts or provide value-added services in exchange for faster payment terms. Many B2B customers who truly value your products or services as a seller or supplier is not going to need to lose you; they need to keep good suppliers. Sometimes higher payment terms for your business might be a win-win.
Look beyond the big banks when it involves working capital loans and small business loans: Small and medium-sized corporations normally find it tougher to acquire loan approval from large banks. Even for easier-to-get SBA loans, the application process can take weeks or months, and even if your business is approved, the loan amount could also be lower than you need. Large banks are not at all times equipped to service the lending needs of smaller businesses, and as a result, many large corporations are unfortunately left without the capital they should grow or stay in business.
Instead of huge banks, more small and medium-sized enterprises should consider taking out working capital loans and lines of credit from non-bank or specialist lenders. Non-bank lenders might be more flexible in assessing a company’s creditworthiness, providing faster approvals and a different perspective on criteria from an underwriting perspective. Unlike the narrow lending standards of traditional banks, non-bank lenders look more holistically at SMB performance and the business owner’s vision and expectations to assist unlock opportunities.
Small and medium-sized business owners might be hopeful about the economy and cash flow in 2024 for a variety of reasons. But whether your cash flow is adequate, adequate or struggling, now is a good time to revisit your payment terms and encourage slow-paying customers to pay faster and consider one other technique to gain flexible access to working capital.