Unlocking liquidity: How international SMEs can navigate high demand periods

While high demand for products or services indicates a prosperous business, there are challenges with busy trade periods for international SMEs

International Small and medium-sized enterprises (SMEs) must be prepared to meet the increased demand for their products or services promptly. This means having adequate liquidity to ensure the availability of necessary resources, such as inventory, raw materials, and skilled labour, to scale operations and fulfil customer orders efficiently.

So, how can international SMEs improve liquidity and maintain a steady cash flow during busy trading periods?

Seek additional funding during peak trading

During peak trade seasons, business opportunities may arise that require immediate funding. For example, a business may wish to seize the chance to acquire a competitor or purchase inventory at a discount. Alternatively, a planned expansion of operations to meet growing demand may be needed, such as opening a new location or launching new products and services.

As a business’ services or products become more in demand, making strategic investments will promote growth and increase profitability. But to do so, companies may need to boost liquidity with a lump sum injection.

Securing a line of credit from a bank is one such method of boosting cash flow quickly. There are many benefits to applying for a traditional bank loan, such as typically lower interest rates, structured repayment schemes and access to larger loans.

However, securing funding from a bank is becoming more unaffordable and unrealistic for small business owners. The Bank of England recently raised interest rates for the 12th consecutive month to 4.5% – the highest rate since 2008 – making the cost of borrowing becoming steeper, and international SMEs will be less likely to get funding.

This is certainly something that is already being felt by UK businesses. According to a recent survey, 77% of brokers reported high street banks are reducing lending to international SMEs.

In this instance, seeking alternative financiers may be a better solution. There are a number of different financing solutions to suit the needs of a business, but one of the most popular is invoice financing.

This involves selling outstanding invoices to a third-party institution for an immediate cash sum. Not only does this improve liquidity by receiving faster repayments, but the lender also assumes the responsibility of collecting payments from customers. This is particularly beneficial for international traders that might seek extra protection or are cautious of customers requesting extended payment terms.

Offer better payment terms to maintain a steady cash flow

Late payment can have a detrimental impact on a business’s cash flow. For small businesses with low cash reserves, delayed invoice fulfilment may mean having to cut overheads, slow growth plans or even make redundancies to maintain a steady cash flow.

55% of international SMEs have unpaid invoices from the 2022/23 tax year

According to a recent survey, 55% of international SMEs have unpaid invoices from the 2022/23 tax year, with a government study confirming small businesses were owed over £23bn in unpaid invoices by big clients at the end of 2022.

For businesses that operate overseas and rely on maintaining good relationships with suppliers, it’s essential to establish payment terms that suit both parties. However, with soaring energy bills, high inflation and ever-increasing interest rates, it’s unsurprising that small businesses may seek out extended payment terms to increase working capital and boost liquidity.

There are several different extended payment options, such as Buy Now, Pay Later, which allow customers to make purchases upfront and pay for them in instalments over time, often without interest or credit checks.

During busy periods when cash is readily available, it’s worth considering offering extended payment terms where possible. This will not only improve relationships with clients and lead to repeat business but will also give international traders a competitive edge to retain and attract customers.

However, delayed payment is riskier since customers are at greater risk of defaulting on payments. Additionally, it’s more beneficial for businesses to have access to cash quickly to boost their own liquidity and protect themselves from cash flow problems.

This is where using a third-party financier can provide the best of both worlds. For example, invoice financing takes away the risk for businesses since, as mentioned earlier, the responsibility of collecting payment rests with the financier. The buyer can enjoy longer payment terms that suit their needs while the supplier secures instant invoice coverage without damaging customer relationships.

Improve operational efficiency to boost cash flow and increase profits

Reducing unnecessary overhead costs is an important step to boosting cash flow and increasing profits during busy trade periods. Inefficient processes lose businesses money long term due to slower turnaround, bottlenecking, high waste and low productivity.
But most concerningly, companies that don’t put value behind streamlining processes are also at risk of having poor business visibility. For international traders, this is particularly damaging since businesses need to be agile and capable of quickly adapting to shifting markets.

Having access to real-time data is vital to maintaining smooth operations during busy times. Investing in inventory management software, for example, can help forecast demand, reduce lead times and avoid bottlenecking the supply chain during peak trade periods.

Inventory is not the only aspect of business processes that can benefit from automation. Automating accounts receivable means faster and more accurate invoicing, which will lead to businesses receiving and processing payments more quickly and improving cash flow. Additionally, timely payment reminders can be automatically sent to customers, preventing resources from being wasted on time-poor manual tasks while improving the chances of customers paying invoices on time.

This piece was written and provided by Kanishka Khanna, Director of Product for Stenn Technologies