Cash flow is a key indicator of financial health that banks consider when lending to businesses Image Credit: Shutterstock

Cash flow

One of the most important things that can be overlooked by companies while focusing on day-to-day operations is the management of their cash flows. However, this is a key indicator of financial health that banks consider when lending to businesses. You often find that by scrutinising the way your company manages its cash cycles, you might unearth cost efficiencies that omit the need for further fund injections in the first place. 

Corporate governance 

Businesses that do not have good corporate governance standards are viewed as risky by banks. There are a few simple measures that companies can put in place to ensure the stability of their business. For instance, family-owned companies, which are fairly common in the UAE, can put formal succession plans into place. Disclosure and investor management policies can also be enacted to provide greater transparency and additional peace of mind to existing and potential financiers of your business. 

Hedge risks

Try to minimise risk when purchasing goods from abroad by hedging your foreign currency payment exposures. Seek help from banks that you have regular financing lines with. They should be able to provide such services free of charge or, depending on the complexity of your hedging requirements, for a nominal fee. Additionally, in order to avoid the risk of non-payment from debtors, try to insure the receivables wherever possible.

Knowledge base 

It has often been observed that SMEs at times lack practical business knowledge or experience to maximise their success. Certain banks, as part of their comprehensive service approach, provide financial planning, legal and regulatory advice to clients to help them grow their businesses in the UAE. Companies also have access to resources — such as databases provided by organisations like Dubai SME — at their disposal. At the same time, companies should keep track of the latest trends in the market so that they are aware of any changes that could impact their businesses. 

Clear plan

A fundamental point that bears repeating: having a clear and well-established business plan, including cash flow projections, will ensure that banks not only understand what you plan to do, but help pinpoint and mitigate potential risks that you might have missed out initially. Whenever possible, provide timely and transparent information about the progress of your business, such as quarterly financial reports or details about your buyers and suppliers. Such an open approach will allow banks to work with you to best manage your cash flows so as to minimise costs and maximise returns. This is especially relevant in times like these, when banks can be relied on to make arrangements that will help clients tide through short-term challenges, as long as there is mutual trust between both parties. 

Talk to the bank

Finally, don’t be afraid to approach your bank whenever you face difficulties. Transparency and open communication are crucial at all times, more so during periods of stress. SMEs and banks need to communicate with each other regularly to better understand changing business requirements or market dynamics, which is crucial for overcoming any issues together before it’s too late. If you have multiple bank relationships and one or more is asking for immediate repayment, it’s better to hold a joint lenders meeting to explain the position openly and discuss the problems being faced, in order to try to find an amicable solution that is amenable to all parties involved. 

The writer is Head of Business Banking at National Bank of Fujairah