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2018 in Review: SME Cash Flow Management Challenges and Opportunities

By Karen Lynch

Cash flow management has always been a balancing act for small and midsize enterprises (SMEs): money coming in versus money going out. In 2018, it became more of a juggling act. Even as the U.S. economy improved, uncertainties surrounding interest rate increases, inflation, taxes, tariffs, and late payments all had to be factored into SMEs’ working capital mix.

At the same time, banks, credit card companies, fintechs, and other financial services providers became increasingly focused on SMEs, and many directly targeted SME cash flow management with their latest products and features.


SME Business Conditions Set the Stage


SMEs benefited from a growing U.S. economy in 2018, with the government reporting 3.5 percent GDP growth in the third quarter.1 Digging deeper, advance estimates of U.S. retail and food services sales for October 2018 were up 4.6 percent from October 2017.2 The same month, the Small Business Optimism Index, published by the National Federation of Independent Business (NFIB), sustained its return to pre-financial crisis highs.3


Going forward, however, other indicators posed question marks about the cost of doing business and the complexity of cash flow management. The Federal Reserve continued to gradually raise interest rates.4 “Federal Funds rates are expected to continue rising into the 3.5 percent range into 2019, much closer to historical norms,” according to a 2019 outlook from the Mercator Advisory Group.5 “Inflation is gradually gaining traction,” according to a Bloomberg report,6 as the Labor Department’s Consumer Price Index for October 2018 rose 2.5 percent over the previous year.7


U.S. wholesale prices rose 2.9 percent in October from the previous year, according to the Labor Department’s Producer Price Index.8 The Institute for Supply Management’s index of manufacturing activity fell to a six-month low during the same month,9 “as corporate purchasing managers lamented rising prices, tariffs, shortages, and waning foreign demand,” according to a report by MarketWatch.10


Cash Flow Management Juggling Act


The Fed’s interest rate increases, in turn, nudge up rates on business credit cards, variable rate loans, and lines of credit. (This is one reason for increased interest in SMEs by financial services companies.)


A 2018 Fed report showed 43 percent of small business credit applicants were borrowing to fund operating expenses.11 Rising rates could encourage some SMEs to advance their plans to borrow, observers said, and inflation and rising tariffs could accelerate purchasing plans. For example, 27 percent of SMEs said interest rate changes are spurring them to seek credit sooner or to refinance current debt, according to TD Bank.12


With interest rates heading up, companies are also turning their attention to working capital management—balancing inventory, accounts receivable, and accounts payable, while also leveraging short-term financing. Examples of steps to improve cash levels include reducing days sales outstanding through customer incentives for faster payment and smoothing inconsistent cash flows with working capital loans and credit cards.


The impacts of 2018 tax reform remained unclear for many SMEs, even in the wake of the Internal Revenue Service’s guidance late in the year.13 “Many small-business owners around the country have been yearning for months to know whether they'll be pass-through winners or losers,” according to a report in Inc. “Even with the new regulations, many owners will likely be turning to accountants and other specialists to cut through the confusion.” (Many small businesses are organized as “pass-throughs,” in which company profits are taxed on the business owner’s tax returns, through the individual income tax code.)14


Late payments continued to be a problem for cash flow management in 2018. On average, 47.6 percent of B2B invoices in the U.S. were overdue in the first half of 2018, according to a report by Atradius, a trade credit insurance company. Forty percent of U.S. companies reported “days sales outstanding” of over 30 days, as they waited for customers to pay.15 Major corporations have been taking an average of 68 days to pay, according to PwC, “representing a potential risk to supply chains.”16


Smoothing Cash Flow Management with Financial Tools


The financing and credit products most sought by SMEs heading into 2018 were loans/lines of credit (87 percent), followed by credit cards (27 percent), according to the Fed’s Small Business Credit Survey.17


Given all the variables on their plates, cash flow managers should weigh the advantages and disadvantages of all available finance tools, according to U.S. News & World Report. For example, while interest rates for loans may be lower, and provide access to a larger amount of capital, credit cards may present fewer application hurdles.18


What’s more, “the simple act of using a credit card for most of your spending could make a massive difference in cash flow, since it would give you a grace period of a few weeks before you have to part with the cash to cover those expenses,” according to a report by The Motley Fool. “And as long as you pay within the terms of your credit card, you can float expenses without paying interest.”19


Across the financial services industry, lenders have developed a renewed interest in SMEs of late. “Fading memories of the carnage in 2008-09 have helped increase the appetite for risk taking,” according to financial consultant Milton Ezrati. “They appreciate that with the Fed raising rates, the cost of deposits will rise, and they will have to take more risk to maintain profit margins.”20 For these and other reasons, funding has become more readily available for cash flow management.



Cash flow management became a more complex challenge in 2018, but financial services companies increasingly catered to SMEs with products and features aimed at smoothing over cash flow issues.

Karen Lynch

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.


1. “U.S. Economy at a Glance,” Bureau of Economic Analysis;
2. “Advance Monthly Sales for Retail and Food Services, October 2018,” U.S. Census Bureau;
3. “October 2018 Report: Small Business Optimism Index,” National Federation of Independent Business;
4. “Federal Reserve Issues FOMC Statement,” Federal Reserve;
5. “2019 Outlook: Commercial and Enterprise Payments,” Mercator Advisory Group;
6. “U.S. Inflation Remained Muted in October Despite Solid Economy,” Bloomberg;
7. “Consumer Price Index Summary,” Bureau of Labor Statistics;
8. “Producer Price Indexes—October 2018,” Bureau of Labor Statistics;
9. “October 2018 Manufacturing ISM Report on Business,” Institute for Supply Management,
10. “ISM manufacturing index falls to six-month low in October as price rises, shortages weigh,” MarketWatch;
11. Small Business Credit Survey, Federal Reserve;
12. “TD Bank Survey Finds Small Businesses Have Major Growth, Hiring Plans,” TD Bank;
13. “IRS to highlight tax reform changes affecting small businesses,” Internal Revenue Service;
14. “Trump’s New 20 Percent Tax Break is Complicated for Small Businesses,” Inc.;
15. “The Americas—An Increase of Overdue B2B Receivables,” Atradius;
16. “Navigating Uncertainty: PwC’s Annual Global Working Capital Study,” PwC;
17. Small Business Credit Survey, Federal Reserve;
18. “Should You Get a Credit Card or Loan for Your Startup?” U.S. News & World Report;
19. “Should You Use a Credit Card for Your Small Business Spending? The Motley Fool;
20. “Competition Between Banks and Alternative Lenders: The Public Wins,” Forbes;