Small and Medium-sized Enterprises (SMEs) are often facing a continuous battle to seek payment solutions that mirror that of their larger counterparts, and after the economic downturn that occurred last year, they may need them now more than ever. 
Sinéad McHale, CEO of cash flow management company Satago, outlines some strategies SMEs should look to adopt to alleviate some payment pressures, ranging from financial stability to automated solutions. 

The year 2023 proved to be a challenging one for many businesses across the UK.

With uncertain economic conditions, intensified by various global and local factors. This led to a significant increase in company insolvencies, with HM Revenue and Customs (HMRC) reporting a staggering 17% rise compared to the previous year. 

Even the largest corporations found themselves grappling with challenges, while small and medium-sized enterprises (SMEs) faced an uphill battle in an increasingly unforgiving economic landscape.

For SMEs, the situation is particularly daunting. Unlike their larger counterparts, SMEs often lack the financial safety net and institutional backing to weather such storms effectively. With a higher risk profile and limited track record, these businesses find themselves at greater risk of falling into debt and facing insolvency faster during challenging times.

So, how can SME owners shore up their resilience and navigate the choppy waters of 2024?

Understanding the Pain-Points

Considering the challenges SME owners face in maintaining financial stability can be daunting, especially in the aftermath of a demanding 2023. In fact, between October 2022 – September 2023, one out of every 191 active companies entered insolvent liquidation, marking 7.2% increase (up to 52%) compared with the previous year’s rate of 47% per 10,000 active companies.

Despite these hurdles, SMEs are resilient, navigating thin profit margins with diligence. While the rate of companies entering insolvent liquidation increased slightly from the previous year, SMEs continue to adapt and persevere, demonstrating their ability to weather storms and emerge stronger.

Although time and resource constraints may hinder long-term planning, SMEs are finding innovative ways to address immediate concerns while laying the foundations for future growth. With determination and creativity, even SMEs facing financial uncertainty can find paths to resilience and success.

Establishing Healthy Credit Control Practices

One of the first steps SMEs can take to future-proof their business is to prioritise the establishment of healthy credit control practices. Effective credit management not only ensures a steady influx of cash but also serves as a barrier against the risks of bad debt and late payments. Since the rise of cost-of-living, 26% of businesses have reported an increase in the number of late payments. By implementing clear credit policies and procedures, SMEs can mitigate the risk of financial instability and enhance their overall financial health.

Central to this effort is the adoption of proactive measures to assess and manage credit risk. Conducting thorough credit checks on customers and establishing stringent criteria for extending credit can help SMEs identify potential red flags early on and avoid entering risky transactions. 

Moreover, fostering open communication channels with customers and cultivating strong relationships built on trust and transparency can facilitate smoother transactions and reduce the likelihood of payment disputes. By instilling a culture of accountability and adherence to payment obligations, SMEs can foster a more sustainable business environment conducive to long-term growth and stability.

Harnessing the Power of Automation

In today’s digital age, automation has emerged as a powerful tool for businesses seeking to streamline their operations and drive efficiencies. By harnessing the power of automation, SME owners can alleviate the burden of manual tasks and optimise their credit control processes with minimal effort.

From automated invoicing and payment reminders to streamlined debt collection workflows, automation offers SMEs a range of tools to streamline their credit management processes and enhance cash flow visibility. For SMEs implementing an innovative invoice-chasing solution promises a transformative impact.

At its core, solutions such as our own at Satago integrate seamlessly with accounting software, automating payment reminders and enabling the imposition of late payment fees. 

Such automation not only accelerates the payment cycle but also nurtures healthier financial relationships between businesses and their clients. With an accessible pricing model, these solutions democratise access to essential credit control tools, previously out of reach for many SMEs.

By prioritising the establishment of healthy credit control practices and harnessing the power of automation, SMEs can position themselves for success in the face of uncertainty. By empowering SMEs with automation tools, this solution not only aids in their survival but also fuels economic growth by fostering a more robust and equitable business environment.