06/05/2020

Quick, efficient and cost-effective international payments: how to keep your business’s cash flowing


Even during the best of times, small and medium-sized enterprises (SMEs) are often faced with a cash flow conundrum – around 57% of UK SMEs have experienced problems with this critical element of business in the past. Failure to address this can mean the difference between growth and stagnation, or even survival and failure for these keystones of the economy.

While managing cash flow is a common concern for SMEs, it appears that with the right approach most organisations can overcome this challenge and thrive. We only need to look at the size and success of this segment of UK business for proof:

  • SMEs account for 99.9% of the business population (5.9 million businesses).
  • SMEs account for 60% of all private-sector jobs in the UK – a total of 16.6 million.
  • SME turnover was estimated at £2.2 trillion (52% of the total) in 2019.

It’s clear to see that SMEs form the backbone of the UK economy, driving growth, inspiring innovation, providing employment opportunities and opening new markets.

However, if cash flow was an issue for some SMEs before the Covid-19 pandemic; it has become a critical concern for most since a wave of global lockdown restrictions suffocated economies. The subsequent sharp and significant fall in domestic and overseas revenue can only be managed for a finite period by these organisations. According to the British Chambers of Commerce, most SMEs in the UK have just three months or less of cash reserves as they fight to survive the pandemic.

Causes of cash flow problems

Cash flow is the lifeblood of any SME. Restrict this supply of income and serious problems will arise, such as difficulty paying creditors and fixed overheads like staff salaries. So, what factors are the common cause of this perennial problem?

  • Late payments
  • Low profits or (worse) losses
  • Expanding too rapidly
  • Over investment
  • Seasonal demand
  • Not paying due attention to expenses
  • Overstocking
  • Poor financial planning

For example, last year SMEs in the UK were owed over £34 billion in late payments, with an average debt of £34,286 owed per business. This is set to escalate after lockdown restrictions forced businesses and consumers to tighten their purse strings amid the rapidly changing economic landscape.

Managing cash flow problems

Don’t panic! Cash flow issues are far from insurmountable. Here are five proactive measures you can take to free up the movement of money:

  • SME loan scheme – the government has promised to help SMEs hit by the economic blow dealt by Covid-19, through the introduction of 100% government-backed Bounce Back Loans of up to £50,000.
  • Cut costs – focus on recurring monthly, quarterly or annual expenses such as utilities, rent or payroll.
  • Regularly monitor your cash flow – consider using convenient online accounting software to simplify account monitoring.
  • Timely invoicing – the sooner you invoice your client, the sooner you’ll receive the money you’re owed.
  • Make payments easy for customers – providing convenient online payment platforms are a great way of achieving this.

International payments

SMEs that operate across international borders are faced by a unique set of challenges when it comes to controlling cash flow: most notably exposure to currency market risk and payment speed and efficiency.

The impact of exchange rates – which are in a constant state of flux under the influence of economic and political variables – on the cost of your international payments, means your business’s cash flow can vary considerably from one month to the next. Failure to adopt a proactive approach to managing your exposure to this currency market risk will leave your cash flow exposed to potentially detrimental exchange rate fluctuations. This should include developing a bespoke currency risk strategy which incorporates agile solutions that shield your payments from market movements.

Without access to an intuitive online platform that facilitates quick and efficient international payments, your business will struggle to maintain the movement of money. Fintechs that operate within this space are adept at delivering innovation that ensures international payments are made on time, every time.

RationalFX

Using our knowledge and experience of international payments, RationalFX will work with you to implement a bespoke currency strategy that considers your unique risks and requirements. From efficient online payment facilities and accurate insight into the FX market, to assistance deploying tools that enable you to secure the cost of future payments, we can help you keep your cash flowing.

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Why choose RationalFX?

Based in the heart of London’s financial district Canary Wharf, RationalFX has traded over $10billion in currencies across the globe. Take advantage of our competitive exchange rates, market expertise, suite of FX products and online payment platform when you make bank to bank transfers in over 50 currencies worldwide.

Whatever your reason for making overseas payments, we’re confident our currency specialists can save you time and money while providing peace of mind. Call our team now on: +44 20 7220 8181