May 22, 2018

Cashflow Problems of SMEs

In Myanmar, SMEs are considered as an important backbone of nation’s economy. They play a crucial role in driving the economic development of Myanmar. In generally, small and medium-sized industries create 50 to 70 percent of the job opportunities and contribute 30 percent of income for a developing country. Their importance is perhaps even more important in our country, Myanmar, because statistics express that 98 percent of Myanmar’s approximately 120,000 registered enterprises are fall under the category of MSMEs and SMEs. The development and nurturing of SMEs can effectively help alleviate poverty. For that to happen, SMEs need to have an atmosphere where they can develop, grow, as well as access to finance and support. Also the government has no doubt about the crucial role of SMEs and trying to strengthen SMEs participation and providing support for SMEs to flourish.

 

Challenges

Nevertheless, many challenges are still remaining and blocking SMEs make them grow progressively. Some common challenges include the acquiring of land or capital assets, the lack of basic infrastructure (electrical power, transportation, energy, etc.) as well as technology innovation, lack of skilled labors, and limited access to financial facilities especially tight lending policy of Commercial Banks.

 

Silent killer of small businesses

Apart from this common challenges, another big obstacle for SMEs running business is “late payment”. In everyday, we hear in our environment that the complaints and difficulties to handle with the long payment terms and late payments. On average, two third of all invoices around the world have been paid late. It’s a huge problem, but business keep running their business as usual however; the growth of business cannot be really achieved as expected!

It was proved by “Magellan Fetalion III” who encountered this problem while he was running a small health publication business. He commented that although his business was significantly growing, it was often hardly keeping the lights on. There were difficult times when he couldn’t pay payroll, payment to suppliers and it is because of 80 percent of the books are receivables “unpaid invoices”. Even he had to sleep in the office for some months as he could no longer pay his own house rent and he sacrificed his salary so which he could allot the money to pay the Company had for the employees.

This is the same story that many businesses encountering in Myanmar for this cashflow problem. Many of them struggling to survive while waiting for their clients to pay them especially who dealing with large companies and MNCs.

Cash flow is the lifeblood of any business. As the saying: “revenue is vanity, profit is sanity, but cash is reality”. No business can persist without sufficient cash flow despite having large revenue. Funds tied up in unpaid invoices restrict a business’ ability to grow. By unlocking the funds, it frees up working capital to support business growth.

 

How to solve this Cashflow problem??

Getting to loan to cover the gaps was come out as question mark for most of them and it will go back to the common challenges that SME encountering — limited access to financing!!! Another alternate solution to solve cashflow problem is “informal lending” which will lead businesses to increase interest rate burden to them.