Lately, I have worked closely with 100+ owners of SMEs.
But one thing was common esp amongst manufacturing companies.
“Kunal Sir, we are growing and sales are very good but it’s not visible in the bank. Cash is always tight and I am really tensed. ”
If this sounds like you, you’re not alone. In India, most SMEs battle long payment cycles (sometimes 90-120 days), high raw material costs and inventory that just sits there eating up money.
But there is good news? You can fix a large part of this without raising fresh capital – just by tightening your working capital cycle.
In this article, I will share very tips & consulting frameworks on how can a SME improve cash flows that can help to generate High turnover as well as Cash in Bank.
Let me share a real (anonymized) story of a mid-sized auto-component manufacturer in Pune. When the client came to me, his primary problem was that he needed more funding as well as was stuck in uneven + tight cash flows.
The Challenge They Faced
Receivables: Average 105 days (paid in 90-120 days)
Inventory: : 75 days of stock (raw material + WIP + finished goods)
Payables : Only 45 days (suppliers wanted faster payment)
Result : The owner was constantly borrowing from banks at 12-14% interest just to pay salaries and buy raw materials.
Cash flow was a monthly headache and I need more funding.
What We Did And the Impact
We focused on four levers that almost every manufacturing SME can pull:
Shorten the Receivables Cycle Introduced clear credit policies: No more open credit to everyone. We rated customers A/B/C based on past payment behavior. Offered Cash Discount of 2% for payment within 15 days – suddenly 40% of buyers started paying early. Automated reminders + polite follow-up calls starting Day 21. Enrolled key invoices on TReDS platforms (like RXIL, M1xchange) to get instant discounting at 8-9% instead of waiting 90 days.
→ Receivables dropped from 105 to 62 days.
Optimize Inventory Without Starving Production Classified inventory into A-B-C items (80/20 rule). Negotiated consignment stock with two large raw-material suppliers – they kept ownership till we used it. Reduced safety stock on slow-moving items and introduced simple Kanban cards on the shop floor.
→ Inventory days came down from 75 to 48 days. Freed up ₹1.8 Cr in cash
Stretch Payables Smartly (Without Losing Suppliers) Built stronger relationships – shared 6-month forecasts so suppliers felt secure. Negotiated 60-75 day terms with key vendors in exchange for larger, regular orders. Used supply-chain finance programs from banks/fintechs where the supplier gets paid early at low cost and we pay later.
Plug the Right Funding Gaps Moved from plain overdraft to a mix of bill discounting, TReDS and working-capital demand loans under CGTMSE (no collateral needed up to ₹5 Cr). Cost of funds dropped from 13.5% to ~9.5%.
Net result after 12 months ?
Cash flow improved by ₹4.2 Cr annually. The owner stopped worrying about payroll every 25th of the month. Revenue run rate further improved by 35%.
Two Simple Frameworks as a SME owner, You Can Start Using Tomorrow
Framework 1: The Cash Conversion Cycle (CCC) Dashboard
Your CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payables Outstanding (DPO)
Aim to reduce it by even 20-30 days and you’ll see magic in your bank balance.