No small business succeeds without a firm grasp - and ideally mastery - over cash. The more you can understand and optimise the money coming in and going out of your business, the better your chances for long-term growth. 

But this is difficult when you have a range of different cash flows, each handled separately. 

Despite the basic fact that cash is cash, most companies have distinct policies, processes, and tools in place, depending on how or why they make or receive payments. Which makes it far more work to oversee the big picture.

We believe that payables, receivables, collections, loans, factoring, expenses, and even payroll are all pieces of the same cash puzzle. By bundling these processes together, you get the cash visibility you need to function at the highest possible level.

7 typical SMB cash flow processes (and common challenges)

1. Accounts payable

There are two categories of challenge we see every day when small businesses manage supplier invoices: operational and strategic. Operational issues include lost invoices, long payment delays, human error from data entry, and no clear way to track approvals. 

All of which put extra strain on finance teams and accountants at month end. 

The strategic challenges are often less obvious. Most SMBs don’t think about them at all. But smart AP strategy lets you pay supplier invoices at optimal times - usually as late as possible. Or pay early and receive discounts.

Most have a simple system: 

• Pay invoices within 30 days

• Bank run weekly/bi-weekly/at the end of the month

While paying in bulk this way is (relatively) efficient, it ignores the payment terms for each specific invoice. Company cash has real time value, which you should actively use to your own benefit. 

2. Accounts receivable and credit sales

Then there’s the other side of the coin: receiving payments from customers. We’re just focused on outstanding credit sales here - if you get paid up front at the checkout, the cash flow is taken care of.

Depending on your industry and business model, you likely follow standard benchmarks and don’t overthink it. Which is perfectly reasonable. 

But two issues to consider: 

• Do your current payment conditions bring in cash as early as realistically possible (without turning off customers)? 

• Do customers actually pay on time? And how successful are your collections processes when they don’t?

As long as most customers pay their bills mostly on time, and don’t create extra headaches, you probably don’t worry about it. But as we’ll see, getting paid quickly is a massive cash flow advantage.

3. Dunning (collections)

Not every company has a formal dunning or collections process. It’s often left to frontline sales and customer support teams to ensure their contacts pay. 

Naturally, the process is unpopular on both sides of the equation. Customers don’t enjoy being chased, and they simply may not have the funds available. 

And you don’t want to have to chase customers in the first place. It adds no value to simply be made whole, and can put the relationship on an awkward footing. But smart SMBs take collections seriously and can balance their own collections needs with keeping customers happy. 

As Good & Proper Tea founder Emilie Holmes explains, “We work with hundreds of wonderful hospitality operators. So we need to make sure that we’re really hot on credit control, that we’ve got the cash coming in that we expect to come in. And we need to balance that against helping our customers, particularly if they’re in a pinch moment or are a multi-site business.”

The key for Emilie is good communication - first amongst her own team and then externally with customers. “We look at credit control with the full team every Monday: who hasn’t paid and who has, and why? Not so that we can hunt them down or threaten them, but to manage our exposure and help everyone. And we talk to the bigger clients constantly, to make sure there’s nothing else we can do to help them pay.”

4. Credit, loans, funding

When payments aren’t flowing in - either due to slow sales or lengthy collections - you may need to look at external funding sources. Which is why cash visibility is so important in the first place. You may not realise how necessary or impactful a line of credit could be until you’re in serious trouble. 

And loans can also help in good times. Suppose you see a sudden boost in orders, but you don’t (yet) have the cash to order enough inventory.
The very best time for a quick funding injection is the moment it’s clear that your current cash flow won’t cut it. But you may have no idea until a month or more later, once reconciliations are done and the books are closed.

5. Factoring & invoice financing

If you have long customer payment terms, or clients that consistently fail to pay, factoring may be a good option. This gives you a loan against those outstanding invoices, in exchange for a fee. Which means cash now, when you need it. 

But a lot of SMB owners simply don’t know this option exists. And for those who do, there are plenty of drawbacks: 

• Lower profits because the third party takes a cut. 

• High rates which eat into those profits. 

• Significant effort, particularly if it’s your first time using this method and you don’t already have a factor.

• There are a lot of providers which again makes it hard to get started.

• Customers may not like being chased by third parties.

Factoring is a lever to pull when you need cash. But by the time you realise this, it’s often too late to take full advantage. 

6. Expenses

Petty cash, travel costs and out-of-pocket expenses often have their own murky system in small businesses. And even if we leave aside the admin hassles - which are plentiful - there’s the issue that you often don’t know who’s spent what until expense claims come in. That can be months after the actual payment was made. 

As the business owner or finance leader, you have far less control over employee expenses than you need. 

If your goal is to have real oversight of company spending - with no nasty surprises - the typical expense claims process is a bad way to go about it. Particularly where it’s completely divorced from other outgoings like AP and payroll. 

Which brings us to the last of our seven processes. 

7. Payroll

Payroll is almost always kept separate from other operational spending. Which broadly makes sense - it’s more of an HR topic than core finance. 

But it does impact your cash flow. And for low-inventory businesses, it’s easily the biggest cost on your books each month.

You can’t (and shouldn’t) optimize payroll by paying late or less often, but you need to view this outgoing money as part of your overall cash cycle. 

What is a high-functioning cash conversion cycle?

Growing small businesses always need more cash in hand. High liquidity lets you invest quickly in new growth initiatives, stay ahead of debts, and instils confidence in investors and lenders.

What this means in practice: 

• Short receivables periods (days sales outstanding). The sooner your clients pay you, the sooner you have cash to spend. There are very few instances where a long DSO is best for a typical small business.

• Long payables delays (days payables outstanding). The longer you can wait before paying suppliers, the more cash you have available in the interim.

• Fast inventory turnover (days inventory outstanding). Unsold inventory is an asset, but not a liquid one. The less time products sit in storage waiting to be sold, the less burdensome they are on your business. 

For the customers we work with, the cash conversion cycle is often between 20-150 days. That means for each pound spent, it can take up to five months to see cash return to their accounts. 

But getting to the lower end requires strategy and an acute understanding of your cash flow at any given moment. 

How bundling payment processes helps achieve this

Visibility is key to a world class cash conversion cycle. If you know what’s coming in and out - in real time, not retroactively - you can make the right decisions at the right times. 

But without very sophisticated business intelligence tools, it’s almost impossible to get that visibility while processes are separate.  

The standard source of truth is bookkeeping: most of the processes we saw above are visible on your balance sheet and/or cash flow statement. But these statements aren’t updated until the month end, at best. In smaller companies, it might only be quarterly or even annually. 

Can you accurately state your cash flow position right now? Probably not, and it’s because these systems are separate.

That matters if you do indeed want to master cash flow. Cash visibility lets you make smart choices, including: 

• Paying suppliers at the end of payment terms, and using that cash now to invest elsewhere.

• Finding a bridging loan or factoring application if you know you need short term cash to tide you over.

• Likewise if the market is hot but cash is tight, a well-timed loan lets you invest quickly and ride the wave. 

• Reducing non-essential expenses in periods where you know cash comes in more slowly. 

Bundle finance processes for more visibility over cash as a whole, and these become relatively straightforward tactics. 

How Mimo provides real cash visibility

This issue is exactly what we’re solving at Mimo. Starting with payables and payroll, you can already see all outgoing payments in one place. 

Soon you’ll also have receivables in the same dashboard, so also you know how and when customers are paying. When those payments are slow, you can access credit lines for up to 60 days. 

Next, you’ll have tools to reduce late payments including automated reminders, customer payment portals, and easy ways to offer flexible payment terms to clients. And you'll be able to finance credit against outstanding receivables (akin to invoice financing), since they’re already in the system. Much faster and lower effort than any bank loan or factoring provider.

All of this makes mastering cash flow simple. You have complete visibility and control over money in and money out, and the best possible tools to take action when required.