Small and medium enterprises previously relying on cash for international transactions have adopted smartphone and credit card payments. While accepting electronic payments can speed up payment processing, small mistakes can snowball into a major headache if the cash isn’t handled effectively and efficiently. Whether for small or large purchases, cash handling is crucial to the business’s cash flow and the company’s bottom line. Mastering cash management practices can strengthen a company’s position, increasing the chances for business growth and success. This blog will explore the best practices for handling cash and overcoming the challenges that come along with manual cash handling to settle the organization’s bottom line.
Common Cash Handling Challenges for SMEs
Handling cash manually is challenging and without automatic reconciliation. Here are some of the common challenges businesses may face with manual cash handling practices.
1. Relying on cash for accepting business payments means slower processing. This ties up the cash, affecting a business’s cash flow. Even if you accept cash through credit cards or e-wallets, manual reconciliation is prone to human error.
2. Manual data entry to invoice customers may also lead to errors. Maintaining invoicing data and the status of invoices on spreadsheets is not reliable and may lead to data inconsistencies.
3. Using manual methods to record payments, and matching collected payments with the invoices is another time-consuming task for the finance teams. This not only consumes the hours spent on the work but also slows down the efficiency of the payment collections.
4. Financial security is also questionable with the manual payment collections. SMEs relying on manual paper-based invoices may experience fraudulent invoices, which may affect profitability and harm the business’s reputation.
These are some of the common challenges when handling cash that may affect a company’s financial performance and bottom line. Read on further to learn the best practices for handling cash.
Best Cash Handling Practices for SMEs
While it is crucial to handle cash effectively for the financial well-being of a business, improving the customer’s payment experience is also essential. This can be achieved with the following cash handling practices.
1. Defining Clear Cash Handling Goals
To achieve cash flow objectives, you first need to define cash goals that should be measurable. You must identify the top cash performance issues that you must overcome. Additionally, monitoring the key performance indicators (KPIs) can help you identify cash flow issues. You can measure Days Sales Outstanding (DSO), aging AR, and other metrics to assess the financial health of your business. These metrics can help managers and C-level executives understand their financial backgrounds so they can set cash-handling goals.
2. Use the Right Cash Handling Tools
Integrating the right cash handling tools can help you set up a comprehensive cash flow management system. There are many tools that can empower your finance teams to handle cash. Integrating an accounts receivable automation solution or payment solution can be the right tool for your business to streamline your invoice-to-cash process. This not only helps you improve the efficiency of financial operations but also gives you an insight into the company’s cash flow.
3. Make Financial Flows Yield Economic Results
Gaining visibility into cash flow and financial health through an intelligent solution will allow you to analyze the financial patterns and make financial decisions that can improve your company’s cash flow. This may include sharing accurate information with stakeholders to explore lucrative investment opportunities. Alternatively, data analytics and insights can be used to stay ahead of the competition in the changing business environment.
4. Ensuring Frictionless Payment Journeys
Offering customers multiple payment electronic payment options will improve your collection rate and resolve your cash flow issues. This can be done by integrating payment portals or solutions with built-in payment solutions. It can allow you to accept ACH payments and other electronic payment methods like credit cards. This can eliminate the friction associated with the payment journeys, ensuring positive financial experiences for customers.
5. Enhance Cash Surplus Utilization
Businesses with a cash surplus must invest in the low-risk and high-yield prospects for maximum returns. This not only optimizes their cash surplus and increases their income but also improves their financial health. However, you must consider short-term forecasts and monthly reviews to assess how your investment is performing. By reviewing your investments monthly, you can increase the chances of profitability in comparison to the quarterly reviews.
6. Optimize Workflows
It is crucial to optimize your company’s invoice-to-cash workflows and this can only be possible with intelligent accounts receivable solutions. This approach can improve the efficiency of collections by reducing manual input which increases the accuracy of operations. Another significant benefit of workflow optimization is cost savings because automation will reduce data inconsistencies and improve the workflows that otherwise would affect financial efficiency.
7. Acquire Insights for Constant Refinement
Even if you implement an intelligent tool to gather insights and track your cash flow, it is crucial to keep an eye on your finances. While automation tools can help you generate accurate reports and record your transactions, keeping an eye on your finances can help you make decisions to mitigate any risk or handle potential financial loss. This can also help you make decisions to prevent overspending and manage the financial health of your business.
The Final Thought
The financial health of SMEs relies heavily on their financial operations and processes. Manually handling cash from invoicing to payment collections and reconciliation can be overwhelming for finance teams, potentially tying up a company’s cash flow and resulting in cash flow bottlenecks. Optimizing financial workflows can improve a company’s financial efficiency and strengthen the cash position of an SME. The best practices discussed in the blogs to enhance cash positions include equipping finance teams with the right tools, closely monitoring cash flow, assessing financial metrics, and ensuring frictionless payment journeys for customers to improve collection rates. By implementing these strategies, you can mitigate financial challenges that may impact your organization’s bottom line.
Also Read: Beating The Odds And Winning: How SMEs Can Thrive in the Digital Era
