Technology can play a significant role in managing your cash flow. Learn about the latest apps and tools that can help you track and optimize your cash flow.

How to use digital tools and platforms to optimize your cash flow and grow your business

Cash flow is the lifeblood of any business. It is the amount of money that flows in and out of your business over a period of time. Cash flow management is the process of monitoring, analyzing, and optimizing your cash flow to ensure that you have enough money to cover your expenses, invest in your growth, and avoid cash flow problems.

However, managing cash flow can be challenging, especially for small and medium-sized businesses (SMBs) that have limited resources and unpredictable revenue streams. According to a survey by Intuit, 61% of SMBs struggle with cash flow, and 42% have experienced cash flow issues in the past year. Some of the common causes of cash flow issues are delinquent payments from customers, unexpected expenses, poor budgeting, and lack of visibility into cash flow.

Fortunately, technology can help SMBs overcome these challenges and improve their cash flow management. In this blog post, we will explore some of the ways that SMBs can harness technology to optimize their cash flow and grow their business.

How Technology Can Improve Cash Flow Management

Technology can help SMBs improve their cash flow management in several ways, such as:

• Automating invoicing and payment processes

• Tracking and forecasting cash flow

• Accessing alternative financing options

• Reducing operational costs

• Increasing sales and customer loyalty

• Automating Invoicing and Payment Processes

One of the most common causes of cash flow issues is late payments from customers. According to a report by Fundbox, SMBs in the US are owed $825 billion in unpaid invoices, and the average SMB has $84,000 in outstanding invoices. This can create a cash flow gap that prevents SMBs from paying their bills, suppliers, and employees on time.

Technology can help SMBs automate their invoicing and payment processes, and reduce the risk of late payments. For example, SMBs can use online invoicing software, such as QuickBooks, FreshBooks, or Wave, to create and send professional invoices, track their status, and send reminders to customers. Online invoicing software can also integrate with online payment platforms, such as PayPal, Stripe, or Square, to enable customers to pay their invoices online, using their preferred payment method, such as credit card, debit card, or bank transfer. This can speed up the payment process, reduce the hassle of chasing payments, and improve the cash flow cycle.

Tracking and Forecasting Cash Flow

Another challenge that SMBs face is the lack of visibility into their cash flow. Many SMBs rely on manual methods, such as spreadsheets, to track and manage their cash flow, which can be time-consuming, error-prone, and outdated. Without accurate and timely information, SMBs may not be able to anticipate cash flow fluctuations, plan, and make informed decisions.

Technology can help SMBs track and forecast their cash flow, and gain more insight and control over their finances. For example, SMBs can use online accounting software, such as Xero, Zoho Books, or Sage, to record and monitor their income and expenses, and generate cash flow statements and reports. Online accounting software can also integrate with other tools, such as bank accounts, invoicing software, and inventory management software, to provide a comprehensive view of the business’s financial health. Additionally, SMBs can use online cash flow forecasting software, such as Float, Pulse, or Dryrun, to project their future cash flow, based on their historical data, current situation, and expected scenarios. This can help SMBs plan, identify potential cash flow gaps, and take proactive measures to avoid them.

Accessing Alternative Financing Options

Sometimes, SMBs may need extra cash to cover their expenses, invest in their growth, or take advantage of new opportunities. However, accessing traditional financing options, such as bank loans, can be difficult, expensive, and time-consuming for SMBs, especially if they have limited credit history, collateral, or cash flow. According to a report by the Federal Reserve, 70% of SMBs that applied for a bank loan in 2019 received less than the amount they requested, and 23% were denied altogether.

Technology can help SMBs access alternative financing options, that are more flexible, affordable, and accessible than bank loans. For example, SMBs can use online lending platforms, such as Kabbage, OnDeck, or LendingClub, to apply for short-term loans, lines of credit, or invoice financing, with minimal paperwork, fast approval, and competitive rates. Online lending platforms use alternative data sources, such as online sales, customer reviews, and social media presence, to assess the creditworthiness and potential of SMBs, and offer them customized financing solutions. Alternatively, SMBs can use online crowdfunding platforms, such as Kickstarter, Indiegogo, or GoFundMe, to raise funds from the public, in exchange for rewards, equity, or donations. Crowdfunding platforms can help SMBs validate their ideas, market their products, and build a loyal customer base, while raising the capital they need.

Reducing Operational Costs

Another way that technology can improve cash flow management is by reducing operational costs. SMBs often have to deal with high fixed costs, such as rent, utilities, equipment, and payroll, that can eat into their cash flow and profitability. By leveraging technology, SMBs can lower their overhead costs, and increase their efficiency and productivity.

For example, SMBs can use cloud-based software, such as Google Workspace, Microsoft 365, or Dropbox, to store, access, and share their files and documents online, without having to invest in expensive hardware, software, or maintenance. Cloud-based software can also enable SMBs to collaborate and communicate with their team members, customers, and partners, from anywhere, at any time, using any device. This can reduce the need for physical office space, travel expenses, and communication costs. Similarly, SMBs can use online tools, such as Shopify, WordPress, or Wix, to create and manage their own websites, e-commerce stores, or blogs, without having to hire web developers, designers, or hosting services. This can help SMBs establish their online presence, reach more customers, and generate more sales, while saving money and time.

Increasing Sales and Customer Loyalty

Finally, technology can help SMBs improve their cash flow management by increasing their sales and customer loyalty. SMBs often face stiff competition from larger and more established businesses, that have more resources, brand recognition, and market share. To survive and thrive, SMBs need to differentiate themselves, offer value to their customers, and build long-term relationships with them.

Technology can help SMBs achieve these goals, by enabling them to create and deliver better products and services, and enhance their customer experience. For example, SMBs can use online tools, such as SurveyMonkey, Mailchimp, or HubSpot, to collect feedback, send newsletters, and create marketing campaigns, to understand their customers’ needs, preferences, and behavior, and tailor their offerings accordingly. Online tools can also help SMBs engage and interact with their customers, through social media, email, chat, or video, and provide them with personalized, timely, and relevant information, support, and incentives. This can help SMBs increase their customer satisfaction, retention, and loyalty, and generate more repeat sales and referrals.

Conclusion

Cash flow management is a critical skill for any business owner, especially for SMBs that have limited resources and unpredictable revenue streams. By harnessing technology, SMBs can improve their cash flow management, and overcome the challenges and risks that they face. Technology can help SMBs automate their invoicing and payment processes, track and forecast their cash flow, access alternative financing options, reduce their operational costs, and increase their sales and customer loyalty. By doing so, SMBs can optimize their cash flow, and grow their business.