Treasury management is arguably the most critical aspect of financial management in an SME. In periods of economic uncertainty, the ability to maintain adequate liquidity can make the difference between survival and closure.
Cash-Flow Forecasting
The first step is to implement a rolling 12-month treasury forecast, reviewed monthly. This exercise allows you to anticipate financing needs and avoid unwelcome surprises.
Optimising Working Capital
Working capital is the lifeblood of a company's day-to-day operations. Optimising it rests on three levers:
- Shorten collection periods: Implement effective credit-control policies and consider early-payment discounts
- Negotiate payment terms: Align supplier payment terms with the receivables cycle
- Stock management: Adopt just-in-time methodologies and clear obsolete stock
Cash is king — especially in uncertain times. A profitable company can fail for want of liquidity, but a company with a healthy treasury position always has options.
Short-Term Financing Instruments
There is a range of solutions for reinforcing liquidity without compromising the company's financial structure:
- Factoring: Advancing receivables at a controlled cost
- Confirming: Reverse factoring that finances supplier payments under a bank guarantee
- Revolving credit facilities: Flexibility for one-off requirements
- Invoice discounting: Immediate conversion of invoices into liquidity
Contingency Reserves
Every SME should hold a treasury reserve equivalent to 2-3 months of fixed costs. This reserve acts as a buffer against the unexpected and allows the business to keep operating even in adverse scenarios.
At Ravina Promissora, we develop bespoke treasury plans that combine working capital optimisation with financing strategies suited to each company's circumstances.