How SMEs can effectively manage cash flow

cash flow

Managing cash flow is an extremely critical aspect of financial planning for many businesses, especially SMEs. It’s an area that can often be difficult to control and could see benefit from tighter monitoring and planning. Many SMEs struggle to properly manage and maintain positive cash flow and research suggests that 63% of SME decision-makers worry about their business’ cash flow. Irrespective of industry size, one thing stands to reason, if the expenses generated by the businesses exceed the amount of cash coming in – then you have a cash flow problem.

Staying on top of outgoings and debtors requires a diligent and well-organized approach. In the first instance, it’s important for SMEs to look at areas of expenditure and try and identify where they can make long-term savings. One such area which tends to be overlooked time and time again is corporate travel and expenses. The proper management of expenses can give businesses a huge advantage, but when handled inadequately the management of corporate expenses can be crippling. As a starting point, SMEs should evaluate their current expense procedures and pinpoint the aspects which are easy to exploit and put sufficient policies in place to ensure they are not being taken advantage of.

Emptying the unofficial piggy bank

There are areas of the expenses process which are easier to manipulate than others and we tend to see the same pattern f claiming behaviour over and over again, across countless businesses. Typically, businesses will get four distinctive spikes in expense claims throughout the year. The first is around Easter, the second just before the school holidays and the last two before Christmas –  one at the end of November and the other halfway through December. During these peak periods, employees can often claim up to 8o% more than they would during a ‘normal’ week. For instance, if an employee regularly submits claims of around R200 a week were to stockpile their receipts over four or five months, the business could be hit with a claim of nearly R4,000. Stockpiling expenses is one of the biggest challenges SMEs face, especially employees who use the expense system as a piggy bank. Of course, employees should be able to easily claim back funds but it shouldn’t be to the detriment of the business’s cash flow.

One of the ways to get around the issue of “piggy banking” is to put expense policies in place which restrict the timeframe in which employees can submit their claims. Setting a time limit of around one to two months encourages employees to keep up to date with claims and stops them from building up large sums. This not only limits the financial impact on the business but also goes some way towards regulating cash flow.

Fraudulent claims

The second most common area of the expense process which is ripe for misuse is the submission of fraudulent claims. Now, of course, not all employees will manipulate the expense system in this way but it does pay for SMEs to carry out proper due diligence and check the information which is being submitted to them. Whether it’s creating fake hotel invoices then staying with a friend/relative and pocketing the accommodation allowance. Or claiming multiple reimbursements from the same train journey by submitting the ticket and collection receipt separately. SMEs should be making sure that the expense claims put forward by employees are in fact genuine, otherwise money is leaving the businesses needlessly and employees are tapping into money which they aren’t entitled to. Putting clear policies in place is key to helping employees correctly navigate the expense process but what if your business doesn’t have the time and resources to sift through and check countless receipts?

Tapping into technology

Most SMEs have already bought into the benefits of cloud-based applications and use them across various functions of the business. Implementing a digital expense management solution could be an alternative to manually checking claims and offers the opportunity to enhance control of employee spending by automating policy enforcement. This would mean that out of policy expenses would be instantly flagged upon submission. Whether they are claims which appear to be duplicated or those which go over the spending allowance, the system would raise these issues and return them to an administrator for extra justification.

With the expenses policy laid our clearly, employees are then able to make fully informed decisions before making a purchase to claim for. It also affords business owners the ability to watch what employees are spending in real-time, instead of waiting until the end of the month to read an expense report. With the digital expense system clearly spelling out policies and spending limits, employees are also required to take photos and upload images of their receipts. This additional layer of accountability can help SMEs tackle misuse of the expenses process and hopefully stabilize cash flow in this aspect of the business.

Introducing automated solutions into the expense process can also help SMEs to recover the maximum amount of VAT possible and take active steps towards positive cash flow. By prompting employees to correctly classify claims such as subsistence, travel, meals or accommodation, businesses can ensure they are paying the right level of VAT on expense items. It also offers up the opportunity to ensure employees are entering the correct VAT figures on purchase.

For SMEs it’s worthwhile identifying areas of weakness in the expenses process as they can have a large impact on cash flow. From the examples above it is easy to see how fraudulent claims can slip through the cracks and quickly add up. The ability to properly manage and control employee expenses, not only saves SMEs time and money but also ensures that the right processes are in place to maintain the business. Only by staying on top of outgoings and having full financial visibility can business owners stay in control, make informed decisions and support future growth.

If you are looking to explore cloud-based options, allonline365 can offer advice on the solution that best fits our business needs. Contact us on or +27 (21) 205 3650

Resource Credit | Finance Digest 

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