Smart cash flow management is important for SMEs who often face challenges including inflation, rising costs, manpower shortages, and supply chain disruptions.

Digital solutions beneficial to master cash flow and navigate financial challenges

MALAYSIA’S small and medium enterprises (SMEs) are the backbone of the nation’s economy, comprising about 97% of all businesses and employing nearly half of the country’s workforce.

Lacking the substantial capital and resources which larger enterprises often enjoy, SMEs are unsurprisingly more vulnerable to macroeconomic volatility and shifts.

Inflation, rising costs, manpower shortages and supply chain disruptions can lead to significant cash flow challenges.

The Covid-19 crisis, for example, critically hindered many small businesses’ ability to manage finances, pay bills, invest in growth and make a profit, as evidenced by the closure of 176,000 SMEs during the pandemic.

Nearly one-third of local SMEs report having just two months of cash reserves, despite 60% seeing an increase in revenue.

While it’s not always easy for small businesses to plan for contingencies, smart cash flow management can certainly help.

Enterprises that range from service and manufacturing to agriculture and construction industries make up 97% of SMEs in Malaysia.Enterprises that range from service and manufacturing to agriculture and construction industries make up 97% of SMEs in Malaysia.

Balancing the books

Cash flow is the lifeblood of small businesses and understanding, having visibility and being able to forecast cash flow is critical to their business health.

This is where digital solutions, particularly cloud accounting software like Xero, can be hugely beneficial to business owners with planning, financial projections, tracking expenses and getting paid faster.

Local businesses have already seen success with Xero.

Take Wanderlust + Co (WCO), which faced a mountain of paperwork and administrative tasks as it expanded.

The founding team needed a secure accounting solution to help manage the increasing complexity of its business, and Xero fit the bill with a user-friendly interface, data syncing and financial reporting – meaning team members can work from anywhere, handle tasks efficiently, and stay on top of sales, inventory and finances, on the go.

Xero’s financial reporting also makes it easy to track business progress, while the multi-currency capabilities provide real-time insights into foreign currency transactions.

Wines: Digital solutions such as cloud accounting software can give SME owners amazing visibility over their businesses.Wines: Digital solutions such as cloud accounting software can give SME owners amazing visibility over their businesses.

E-invoicing mandate

From August this year, the Malaysian government is introducing a new e-invoicing mandate.

Like many other countries around the world, this shift towards electronic reporting will enable enhanced tax administration and operational efficiency for participating companies.

The mandate will apply to businesses in stages, based on their annual turnover, beginning with the highest earners at a threshold of RM100mil and more, to include all businesses by July next year.

This gives most SMEs roughly six months to a year to convert their invoicing processes and get all systems in place to align with this new way forward.

Thankfully, the benefits of e-invoicing are quite clear – from improving efficiency and cash flow to ensuring tax compliance.

For SMEs, these advantages are particularly compelling as it can save money, reduce human error and speed up payment processing.

Additionally, it helps businesses manage accurate financial record-keeping for tax purposes.

Malaysian businesses using Xero can expect to access this e-invoicing feature soon, following its successful implementation in Singapore, Australia and New Zealand.

With e-invoicing becoming mandatory, adopting it early with the right software can give businesses a head start and ensure seamless compliance with government regulations.

Future proofing

While many businesses won’t go digital overnight, Malaysian SMEs need access to financial information to keep moving forward.

Here are three key strategies to future proof your business:

> Go digital: Work with your accountant or business advisor to identify which parts of your business and operations can be digitised to build a seamless, holistic solution that functions as a customised enterprise resource planning (ERP) system.

> Use data to drive the business: Your new holistic solution will generate immense amounts of data on business performance that can be turned into actionable insights, enabling you to make smarter, more informed decisions, and develop effective business and operational plans and strategies moving forward.

> Optimise cash flow: Your cloud solution will give you the visibility and oversight to accelerate payments, manage receivables, and control expenses to ensure you maintain healthy liquidity.

Effective cash flow management means SME leaders can focus on the bigger picture while having the security of available funds to meet business obligations.

This gives them the ability to accelerate payments, manage receivables, and control expenses to ensure you maintain healthy liquidity.

The lifeblood of any business is cash flow.

Investing in an effective solution to manage expenses, inventory and invoicing is key for Malaysian SMEs to consider as the country powers ahead with its digital transformation journey.

Koren Wines is Xero Asia’s managing director.

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