How to solve the cash flow issue in your SME?
Being your own boss appeals to any individual, and having your own business can be a sheer delight. Anita, a like-minded woman feels liberated running her small Kurti boutique in Mumbai. But there are some downsides in running a business that dissuades her from expanding further. Managing cash flow is one such downside.
Cash flow means money that comes in and goes out of a business. Cash flow problems occur when outflow exceeds inflow of cash. For example, Anita spends Rs.75, 000 per month on rent, electricity, supplies, salaries, wages etc. but her monthly inflow of cash is Rs.65, 000. She has a negative cash flow of Rs.10, 000 in spite of her having goods worth Rs.50, 000 out on credit.
Small businesses like Anita’s Kurti business often faces cash flow problems arising due to either poor collection methods, delay in bills receivable, increased expenses or similar such reasons.
Some common problems small businesses face relating to cash flow are:
1. Early payment of bills: Paying bills early is a good practice theoretically but practically you should pay bills on time, neither too early nor late because this impacts cash flow. If you end up paying bills early, your cash in hand will be less and thus a cash flow problem arises.
2. Failure to look at the financial structure: At the beginning of any business, a negative cash flow is common, however, once the business picks up, after 3 years if the cash flow is still negative, that means there is something wrong in the financial structure. Thus the financial structure should be scrutinized, all unnecessary expenditures must be avoided, and according to the sales pattern the structure should be corrected.
3. Lag in payments: When goods are given on credit, there may be a delay in payments; however the businessman might have an urgent requirement of cash. Lag in payments simply means a delay in inflow. So if the businessman had estimated a particular amount of cash inflow in a particular month, and his clients failed to adhere to the deadlines, the businessman might find himself in a fix. This occurs at those times when he has given out too many goods on credit.
4. Sales during particular seasons: Sometimes businesses do well only during a particular period of time. For e.g. A businessman selling umbrellas will be in a profit during monsoon season and to a certain extent summer, but otherwise, he wouldn’t be doing that much business. This impacts cash flow.
One solution to these problems could be taking a short term loan, but taking a loan from a bank has many impediments:
a. Slow processes: Banks usually take 7-31 working days to approve a loan.
b. Collaterals: If credit history isn’t good, banks require collaterals.
c. Existing Credit History: A good existing credit history is required without which, he may not get a loan. If he isn’t an existed customer the loan process is even longer.
d. Documentation: Banks require many documents to sanction a loan.
e. Availability of specific loans: There may be standardized loans that may not suit your individual requirements.
But with FinTech this issue has been solved. Any small business can apply for a loan online; moreover, they can apply for a loan simply through their laptops and phones sitting at home!
FlexiLoans is one such company providing loans to small and medium businesses online. Their fast, flexible and easy process has solved the cash flow problems of many businesses. Their user friendly website has attracted customers with businesses ranging from home care appliances, to baby care products. They cater to every customer individually and customize loan schedules according to each one. What more? They require minimum documents and no credit history!