From policy to payment: A practical guide to cashflow confidence for SMEs
Most SMEs don’t have a cash problem – they have a policy to payment gap. The good news is that improving cashflow rarely requires radical change. Applying the five cashflow management recommendations below can materially improve working capital, strengthen resilience and reduce stress across the business.
1. Write (and live by) robust terms of trade
Why it matters:
Your terms set the tone for the commercial relationship and give you leverage when payments slip.
Your terms set the tone for the commercial relationship and give you leverage when payments slip.
What ‘good’ looks like:
- Standard T&Cs tailored to customer segments, with e-signature built into onboarding.
- Clauses covering payment timing, late fees, delivery/acceptance, retention of title and dispute windows.
- An annual legal and operational review to ensure terms reflect updated products, pricing and processes.
Action:
Run a T&Cs “health check” with sales, finance and legal, and build a mandatory sign-off gate in your CRM before any first sale.
Run a T&Cs “health check” with sales, finance and legal, and build a mandatory sign-off gate in your CRM before any first sale.
2. Define your non‑payer playbook
Why it matters:
Ambiguity equals drift – and drift destroys cashflow.
Ambiguity equals drift – and drift destroys cashflow.
What ‘good’ looks like:
- A daily timeline (gentle → firm), followed by service hold, then disengagement.
- Clear thresholds for escalation and stop work decisions.
- Templates for reminder emails, call scripts and final notices, ensuring consistency across teams.
Action:
Publish the playbook internally and rehearse it with account managers. Review aged debt weekly and assign actions with clear ownership.
Publish the playbook internally and rehearse it with account managers. Review aged debt weekly and assign actions with clear ownership.
3. Master the cash conversion cycle (CCC)
Why it matters:
The CCC shows where cash is trapped (inventory days + debtor days − creditor days). Shortening any stage releases working capital.
The CCC shows where cash is trapped (inventory days + debtor days − creditor days). Shortening any stage releases working capital.
What ‘good’ looks like:
- Same day billing on delivery or milestone completion; e-invoicing as default.
- Tight proof of delivery and acceptance processes to prevent disputes.
- Weekly aged debt standups to unblock issues early.
Action:
Put the CCC on your leadership dashboard. Assign owners to each stage and aim for a 10–15% improvement within 90 days.
Put the CCC on your leadership dashboard. Assign owners to each stage and aim for a 10–15% improvement within 90 days.
4. Reduce friction with modern payment rails
Why it matters:
The easier customers can pay, the faster cash lands.
The easier customers can pay, the faster cash lands.
What ‘good’ looks like:
- “Pay now” links on invoices and statements; QR codes on printed documents.
- Multiple payment options (card, open banking, instalments where appropriate).
- Automatic allocation and reconciliation to reduce manual finance team effort.
Action:
Pilot a payment gateway with your top 20 accounts and track debtor days before and after implementation.
Pilot a payment gateway with your top 20 accounts and track debtor days before and after implementation.
5. Deploy early payment incentives with intent
Why it matters:
Small, targeted discounts can meaningfully shorten debtor days - but only when used strategically.
Small, targeted discounts can meaningfully shorten debtor days - but only when used strategically.
What ‘good’ looks like:
- Incentives linked to cash hungry trading periods or specific product lines.
- Offered only to reliable payers or new customers as part of onboarding.
- Evaluated on net benefit (discount cost vs cashflow gained).
Action:
Run an 8–12 week controlled test. Review the cohort results and turn the approach into a formal policy if it delivers measurable gains.
Run an 8–12 week controlled test. Review the cohort results and turn the approach into a formal policy if it delivers measurable gains.
We’re here to help
If you have questions about your business’ cashflow or want greater confidence on it, get in touch with a member of our team using the form below.
For more on this topic, listen to our associated Fresh Perspectives episode – the business podcast from Azets.
