Here’s how struggling retailers can avert a looming cash flow crisis

Only 1 in 4 companies are paying bills on time.

Retail SMEs are facing a cash flow crisis as creditors demand stricter debt payment terms, according to a report by DP Information Group. 

Lincoln Teo, Chief Operating Officer of DP Info, said the tight payment times are an indication of the concern other companies have when providing credit to retail companies.

In order to avert a cash flow crisis, Teo said that retail SMEs must employ several strategies in order to stay afloat in the current cutthroat retail climate.

It is imperative for retail companies to review their current business approach, such as by reducing their reliance on manpower and embracing online trading.

Retailers also need to reduce their overhead costs, such as by finding cheaper warehousing or negotiating better rates from couriers.

Another method to reduce costs would be by reviewing purchasing plans, such as by making smaller and more frequent purchases rather than buying in bulk once or twice a year. This ensures that less of the company’s money is tied up in payables and inventory.

Retailers must also assess their credit needs carefully before signing up for debt. SMEs should also manage their currency risks by exploring hedging options.

“Several unfavourable factors are impacting the retail sector including higher wages, foreign labour restrictions, increased rents and increased competition. This has made companies more cautious when extending credit terms to a retail company,” Teo said.

“This has a negative effect on the cash flow of retail companies because they are unable to tap on suppliers’ credit - a common short-term financing approach used to ease their cash flow,” he added.