According to one last pollsmall business owners are feeling more optimistic about the economy and the performance of their companies. MetLife and the U.S. Chamber of Commerce's Q2 2024 Small Business Index found that 36% of SMBs believe the U.S. economy is in good shape and 42% say their local economy is healthy – both figures are up 12% from this past time. year. 73% of SMBs said their cash flow is currently healthy – up 6% from the end of 2023.

However, 55% of SMBs said this inflation is still the biggest challenge they face. If your company is still struggling to control costs and your customers are becoming more price sensitive, you may be vulnerable to a cash crunch. Fortunately, recent economic data appears to indicate that inflation is cooling rapidly. The Fed cut interest rates in September with the goal of helping the economy achieve a “soft landing” to overcome inflation without entering a recession.

Lower borrowing costs and lower inflation in a “soft landing” economy would be good news for SMBs. But even if your business is currently in a good cash-flow spot, it can be a great opportunity for SMB owners to review cash flow management practices.

Let's examine why SMBs need to act now to support their cash flow, keep their businesses in the black, and sustain growth in 2024 and beyond.

Related: 4 cash flow trends to know in 2024

Why SMBs are at greater risk

SMBs, just by the nature of their size, are typically at higher risk lack of cash flow than large companies. Here are three main reasons why:

Harder access to credit: SMBs are underserved by traditional bank lending and may find it more difficult to access affordable lines of credit. Federal Reserve 2024 Small Business Credit Survey of Employer Firms found that 29% of small businesses had difficulty accessing credit in the past 12 months. With a lack of access to credit, it's no surprise that this Fed survey also found that 49% of small businesses experienced uneven cash flow and 52% had difficulty paying operating expenses.

Slow and late payments: Unfortunately, SMBs are also vulnerable to late payment backlogs and slow paying customers. Fed Small Business Lending Survey found that 39% of small businesses said they had experienced challenges with customers who were slow to pay and 18% reported challenges with delays in repayment or availability of funds.

Seasonal cash flow trends: Smaller companies that rely on seasonal income may also be at higher risk of cash flow challenges. For example, apparel distributors and manufacturers may see an increase in demand ahead of the retail holiday season, while garden supply businesses may see slower revenue during the cold weather months. Seasonal cycles make it especially important for SMBs to build consistency in their cash flow and maintain sufficient working capital throughout the year.

Despite the challenges of managing cash flow, SMBs are not powerless. They have several advantages and powerful resources at their disposal to tackle cash flow challenges.

How SMBs Can Overcome Cash Flow Challenges

Here are some cash flow management strategies that more SMBs should consider as part of improving their business's financial performance.

Review your payment terms: Smaller businesses thrive on customer relationships, but sometimes their goodwill and generous payment terms are taken advantage of by slow-paying customers. It's important for SMBs to strike the right balance between an understandable emphasis on customer retention and the need to implement realistic payment terms and polite (but consistent) collection policies.

Lean on customer relationships: Some customers may not realize that their slow payments or generous payment terms are becoming a problem for your business. Communication is critical. SMBs need to explain to customers why timely payments are critical to the health of their business and their ability to continue to be good partners. Look for ways to offer discounts or offer value-added services in exchange for faster payment terms. Many B2B customers who truly value your products or services as a vendor or supplier will not want to lose you; they want to keep good suppliers. Sometimes, the best payment terms for your business can be a win-win.

Look beyond the big banks for working capital and small business loans: SMBs tend to have a harder time getting approved for loans at big banks. Even with the easiest SBA loans to get, the application process can take weeks or months, and even if your business is approved, the loan amount may be less than you need. Big banks aren't always built to handle the lending needs of smaller businesses, and as a result, many large companies unfortunately go without the capital they need to grow—or stay afloat.

Instead of big banks, more SMBs should consider getting working capital loans and lines of credit from non-bank lenders or specialty lenders. Non-bank lenders can be more flexible in how they assess a business's creditworthiness, with faster approvals and a different lens of criteria from an underwriting perspective. Unlike a traditional bank's narrow credit standards, non-bank lenders take a more comprehensive look at the SMB's performance and the business owner's vision and expectations to help unlock opportunities.

There are many reasons for SMB owners to be hopeful about the economy and their cash flow in 2024. But whether your cash flow is adequate, plentiful, or struggling, now is a good time to review the terms your payment terms, to encourage your slow-paying customers to pay more quickly, and consider another way to get flexible access to working capital.