Small and medium-sized enterprises (SMEs) contribute significantly to job creation, income generation, and overall economic growth. However, like any other business, SMEs in Sri Lanka require access to financial services to operate successfully. Basic banking practices, therefore, become critical for these businesses to operate efficiently and thrive. In this article, we explore some of the fundamental banking practices in Sri Lanka pertaining to SMEs.
Opening a bank account:
Essentially a first step for any SME in Sri Lanka. With a bank account, businesses can easily receive payments from customers, pay suppliers, and manage their cash flow effectively. Most banks in Sri Lanka offer a variety of accounts to choose from, such as savings accounts, current accounts, and fixed deposit accounts. It is important to select an account that best suits the business’s needs and financial goals. For instance, if the business requires frequent transactions, a current account would be more suitable than a savings account.
Once a bank account has been opened, SMEs should ensure that they are utilizing it effectively. They should make use of online and mobile banking services to make transactions quickly and efficiently. Additionally, they should keep track of their account balances and transactions regularly to ensure that they are not overdrawn or incurring unnecessary fees. Banks in Sri Lanka offer alerts and notifications that SMEs can sign up for to keep track of their account activity.
Maintaining proper records;
It is critical for SMEs to manage their finances effectively. Records of all transactions should be maintained accurately; receipts, invoices, and bank statements etc. These records help SMEs to track their income and expenses and identify areas where they can cut costs or increase revenue. Now the Sri Lankan banks are giving soft copies of bank statements through the mail. This will help to ensure the continuation of proper records in the businesses. Additionally, banks require businesses to provide financial records when applying for loans or other financial services. Maintaining accurate records can, therefore, improve the chances of approval for such services.
Making timely payments:
Imperative SMEs ensure timely payments to suppliers and other creditors. Late payments can harm the business’s reputation and lead to additional costs such as interest and penalties. Banks in Sri Lanka offer various payment methods, such as online banking, mobile banking, and cheque payments, that SMEs can use to make payments to suppliers and creditors.
Obtaining credit facilities:
Obtaining credit facilities from banks to fund their business operations is a norm. Overdrafts, loans, and credit cards can help SMEs manage their cash flow and invest in growth opportunities. However, before applying for credit facilities, SMEs should ensure that they have a solid business plan, a good credit history, and a positive cash flow. Additionally, SMEs should compare the interest rates and terms and conditions of different banks to select a credit facility that best suits their needs.
Relationship with bank:
SMEs should prioritize building a good relationship with their bank. A good relationship with the bank can provide SMEs with various benefits, such as access to financial advice and customized financial solutions. SMEs can build a good relationship with their bank by maintaining good financial records, making timely payments, and engaging with the bank regularly. Additionally, SMEs can participate in various banking programs and initiatives that banks offer to promote SME development.
This content was facilitated by CeFEnI/COSME and prepared by the University of Sri Jayawardenapura, Kotte