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How SMEs improve cash flow using cashflow management software

What you’ll learn


  • Learn about the challenges in cash flow management faced by small and mid-sized companies.
  • Understand the benefits of how SMEs can maintain a positive cash flow using cash flow management software.

Why is cash management important to small businesses and mid-markets?

SMEs have to generate adequate cash flow from their business to survive, so they can cover their expenses, maintain payroll, repay investors, and expand their business. Hence, cash management is crucial for small and mid-sized companies so they can not only meet their daily expenses but also grow their business and stay prepared for any uncertain cash-deficit scenarios.

Common concerns that SMEs experience with cash flow

According to the 2019 QuickBooks State of Small Business Cash Flow survey, 61% of small business owners struggled with managing cash flow. As a result of those cash flow issues, 32% of small business owners could not pay vendors, loans, or employees.

Challenges in mid-market and small business cash flow management:

Challenges in mid-market and small business cash flow management

  • Lack of cash reserves:
  • One of the main reasons SMEs fail is because they lack cash reserves. Without accurate cash management, a business may become non-solvent due to a lack of cash reserves for regular or unplanned needs. Most small businesses can’t hold a level of cash reserves that would provide a sufficient cushion during a significant economic downturn or other disruption. They also struggle with cash management and healthy cash flow since they rely on sales and timely payments, which are often unpredictable.

  • Absence of automation, centralization, and standardization:
  • Companies often lack centralization and primarily create forecasts using spreadsheets. This has an impact on forecasting turnaround time and accuracy. Usually, to save money, SMEs don’t adopt automation, centralization, and standardization. But, this could negatively impact them in the following ways:

    • Lack of standardization results in inefficient risk management, a varied technical environment, and a more complex business environment.
    • Decentralization results in ineffective decision-making and delayed reporting.
    • Lack of automation leads to poor decision making, unstructured data, repetitive tasks, and difficulty in making payments and reconciling payments.
  • Manual and error-prone processes:
  • Data input problems and limited frequency may result from individual task execution. Data integration, entry, and confirmation in spreadsheets or legacy systems take up most of the treasury department’s work. This results in only a little time left over for crucial tasks. Moreover, manual data aggregation increases the chances of errors in data.

  • Lack of a robust bookkeeping system to track cash flows:
  • Poor bookkeeping may result from manual bookkeeping practices or irregular financial record updates. Due to poor bookkeeping practices, small businesses can be turned down for financing or certain lines of credit. Poor bookkeeping also creates inventory shortages due to cash mismanagement. Ineffective bookkeeping can have an impact on several factors, including: 

    • Credit issues
    • Lack of sales and profits
    • Poor business decisions
    • High risk for internal fraud
  • Cash flow difficulties and uncertainties:
  • Many SMEs struggle with planning and accurately identifying how much cash flows in and out of business. This is because they are unable to track uncertainties like A/R and A/P. Moreover, low-profit margins make invoicing and collecting payments challenging, and excessive capacity or inventory investments affect cash flow. Cash flow difficulties and uncertainties lead to:

    • Ineffective risk control due to poor decisions
    • Inefficient operations due to panic purchases
    • Extremely high levels of withdrawals or borrowings
    • Failure to make profits

How to improve cash flow in small and medium-sized enterprises

The most important aspect of improving cash flow in small and medium-sized enterprises is constantly monitoring it. Here are four tips for small business cash flow management:

  • Cut unnecessary expenses:
  • Look over the line items to find places where you may cut costs and preserve savings. To escape negative cash flow, a company with a cash deficit must look into new tactical cost-cutting methods. There are several methods for doing this:

    • Prioritize spending on basics and keep track of costs by dividing them into fixed and variable costs
    • Keep track of tax deductions
    • Outsource bookkeeping procedures for efficient and error-free auditing
  • Reconcile bank statements automatically:
  • Processing bank statements and prior-day reconciliation automatically saves time, eliminates errors, and gives cash managers more time to concentrate on more crucial, higher-value tasks. Enterprise treasurers can automatically reconcile items on the bank statement by employing user-defined tolerances, matching algorithms, and auto-cash transaction creation. The manual matching tool helps quickly identify and address exceptions. This facilitates:

    • Keeping track of bank connectivity, balances, and reconciliation status at the account level
    • Manually reconciling transactions and outstanding statement items to handle exceptions
  • Ensure timely availability of accurate and current data:
  • Treasurers can proactively detect risks before they result in losses for the company by having accurate cash flow and real-time data visibility.

    Cash flow management tools create high-quality reports with deep insights and drill-down capabilities in real-time. With shorter turnaround times, CFOs can promptly obtain reports on managing cash flows, bank balances, and funding needs. 

  • Reduce human error and manual entry through automation:
  • Manual data entry is time-consuming and is prone to human error. By automating data collection and cutting down on time spent on repeated processes, businesses may reallocate resources to where they are most needed.

    As a result, treasury analysts and managers can concentrate on high-value functions, including cash management, risk management, and strategic decision-making.

  • Build a cash cushion:
  • Maintaining a cash cushion is one of the best methods to manage cash flow and avoid difficulties. Most financial planners advise SMEs to set aside three to six months’ worth of money to cover expenses. It can provide invaluable peace of mind and self-confidence when revenue is down during a business slowdown. A sensible cash management system can provide a comfortable and profitable cushion.

How can SMEs benefit from HighRadius cash flow management software?

Cash flow management tools allow managers and treasury teams to modify procedures and policies. HighRadius cash flow management software can improve cash flow planning with accurate data. Businesses can examine their cash on hand and better understand their financial status. 

Here are the ways SMEs can benefit from HighRadius cash flow management software:

  • Automated bank statement processing and reconciliation saves time, reduces mistakes, and frees up cash managers to concentrate on duties of higher value
  • Treasurers have more significant time and access to crucial information because of global cash visibility, which helps them choose better investments and sources of finance
  • Treasurers and treasury managers can view real-time cash positions across bank accounts, businesses, pools, and currencies in user-defined worksheet templates with transaction-level drill-down capability
  • The treasury department can initiate cash transactions or intercompany transactions and then use advanced search tools to investigate them
  • The software automatically reconciles transactions, with a few unusual exceptions that are reconciled either manually or automatically using default and user-defined tagging criteria

Schedule a demo to learn more about improving cash flow in SMEs using cash flow management software.

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The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.