Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsFinancial Guide for SMEsChapter Five – Improving Cash FlowWorking capital is the short-term capital that works for the business. Thisincludes inventory, work-in-progress, payments to suppliers and receiptsfrom customers. By working on your cycle more efficiently, you wouldhave more readily available cash to use in other parts of the businessTopicHint TipManaging Inventory Setting up good inventory controlprocedures will ensure that cash is not tiedup in holding unnecessary inventorySee page 52 for complete listof tipsManaging Paymentsto SuppliersSetting up good management procedureswill ensure that you get the most out ofyour relationship with suppliersSee page 57 for complete listof tipsManaging Work- in -progressThe key to managing work-in-progress isto have a good record keeping systemSee page 59 for complete listof tipsManaging ReceivablesEnsure that you have good procedures inplace to encourage prompt paymentSee page 63 for complete listof tipsWorking CapitalCycle – CashConversion RateCalculate the cash conversion rate andcompare this to the standards within yourindustry. Identify which areas of the cycleare problematic and prepare an actionplan to improve the cash conversion rateCalculate your cash conversion rate regularlyand implement improvement to your workingcapital to release idle cash that is not beingused within the business. This will reducethe need to borrow additional funds tosupport the operations of the business,decrease dependency on funds from financiers,and reduce any interest expense incurred172172 159chapter 7-13 p79-181 Eng.indd 1728/15/11 5:03:11 PM