Online SME Lending and Other Cash Flow Risk Reduction Strategies

The importance of healthy, positive cash flow is not a revelation for most small business owners. At this size, ensuring a consistent and healthy inflow of cash to meet operating expenses (and growth opportunities!) is a primary goal. This is why it’s important to consider online SME lending and other cash flow risk management strategies designed with small businesses in mind. 

Furthermore, despite essentially comprising the backbone of the local economy, growing businesses are often denied access to efficient and effective business funding by legacy lenders whose services are best suited to larger businesses. This makes cash flow risk management an even more high-priority item for SMEs. 

Fortunately, growing businesses thrive when supplied with the right cash flow management tools and financial support tailored to their needs. Consider this blog an SME-specific resource on how to reduce cash flow risk for positive outcomes. 

Understanding cash flow terminology

Understanding some common terminology associated with cash flow is a good place to start to learn how to manage it positively. So, let’s dive in. 

Cash flow: Cash flow is sometimes mistaken for a revenue or profit figure. Cash flow can’t strictly be boiled down to a number. The term describes a process more accurately than it does a single figure. Cash flow can be negative (more expenses than income in a predetermined period) or positive (more income than expenses in a predetermined period). 

CFAR (cash flow at risk): CFAR is a measure of the portion of future cash flow that is influenced by fluctuating market conditions, and is usually organised in order of importance. 

VAR (value at risk): VAR is a measure of the extent to which the value of an investment could be impacted over a given period, often calculated with a probability indicator. 

Liquidity risk: Liquidity risk describes how prepared a business is to cover its financial commitments — literally how liquid its capital is. 

A lot of the language used to describe cash flow risk management is about, well, risk. That can feel daunting for a business owner trying to keep their sights on a positive future. However, it’s important to remember that understanding cash flow risk management is the first step to healthy cash flow management practices, which protect your business from these risks. 

What factors influence cash flow patterns for growing businesses?  

Many factors influence cash flow patterns, both internal (like operational expenses and system inefficiencies) and external. These include macroeconomic market conditions, interest rates, availability of finance, and large-scale events like recessions and pandemics (need we say more?). 

On a slightly smaller scale, a business’s cash flow can be influenced by volatility or adverse events in the specific industries in which the business operates. For example, the cost of an essential raw material can fluctuate, or demand for a particular product drops or skyrockets. 

On an even more local scale, SA-specific economic disruptions like load shedding and transport strikes can really throw a spanner in the cash flow works. However, the same conditions that pose challenges for South African small businesses are the ones that produce such resilient and resourceful SMEs — not to mention the alternative lenders who have tailored small business-friendly funding options to turn obstacles into opportunities. 

How online SME lending (and other strategies) can reduce cash flow risk 

With the special resilience of South African businesses in mind, let’s explore some of the cash flow risk mitigation strategies that business owners can implement to protect their businesses from potential economic disruption at home and abroad. Think of it like building a hay bale barrier around a go-kart track; you’re not assembling it with the intention of driving into it, but you’ll be glad you had it if things go off course! 

1. Build and maintain internal cash reserves

Even small businesses can prioritise saving! Putting aside a modest portion of revenue consistently adds up faster than you think. When you combine saving habits with regularly reviewing and trimming unnecessary business expenses, you’ll have healthy cash reserves on hand for growth and investment opportunities that will leapfrog your progress. 

2. Manage payment plans for yourself and your customers 

Everyone is subject to cash flow disruptions, which has a knock-on effect on how efficiently accounts can be settled. Late payments can quickly snowball into a cash flow plug, but following up on invoices promptly can make a world of difference. 

On the other hand, if you are the one who needs a grace period, don’t hesitate to reach out to your creditors and arrange a payment plan. Transparent communication goes a long way, and short-term debts can be transformed into long-term debts for more financial flexibility. 

3. Prioritise access to fast and flexible cash flow funding with online SME lending

Positive cash flow is the key to positive business growth. Online SME lending is an innovative financing solution for small businesses seeking access to funding in a matter of hours, rather than the many days or weeks it typically takes to be approved for traditional financing. 

Bridgement facilitates flexible access to up to R5 million in business funding within 24 hours. It only takes two minutes to apply online — who said developing a comprehensive cash flow risk management plan had to be time-consuming?