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Running a business

Improve cash flow management - 15 tips

By QuickBooks Australia

Published on June 11, 2024

Many small businesses struggle with cash collections, and finding enough cash to operate each month can be a challenge. Speeding up cash collections, even by a day or two, can have a meaningful impact on your finances. If you could receive customer payments faster, how would your business improve?

To understand your cash inflows and outflows, check out these tips and the steps you can take to improve your cash flow management, including the use of technology to receive payments faster.

Implement a collection policy
Offer discounts
Push efficient inventory management
Put better systems in place
Bill your customers as soon as possible
Offer invoice incentives
Implement a late payment charge
Increase your sales price
Increase your sales market size
Create sales funnels
Reward long-time customers
Increase output speed and efficiency
Lease instead of buy
Create better relationships
Ask for discounts

1. Implement a collection policy

Enforce a formal collection policy to manage your accounts receivable balance.

Your accounting software should provide an ageing schedule for accounts receivable, and which groups your receivables based on when each invoice was issued. You should monitor this report and implement a collections process to email and possibly call clients to ask for payment.

2. Offer discounts

Offer customers a discount if they pay an invoice within 10 days. Sure, you’ll collect slightly less cash, but some customers will pay faster, which improves your cash inflow.

For example, offer customers a 5 percent discount if they pay within 10 days of receiving the invoice. You may lose 5 percent of the revenue generated, but collecting cash sooner may eliminate the need to borrow money and pay interest costs.

3. Push efficient inventory management

Manage inventory efficiently. Although it is a balancing act, you can reap multiple rewards by doing this.

For instance, if your business is in manufacturing, you may keep a supply of finished items on hand as inventory. Carrying an inventory balance allows you to quickly fill orders so that clients don’t have to wait.

Another tip for inventory management is to develop a strong relationship with your largest customers. Understanding the future needs of your biggest clients allows you to pre-plan your own inventory needs.

4. Put better systems in place

Every business should use better systems like technology to collect cash faster, including software tools that speed up the time it takes to transfer payments into the company’s bank account. If you can speed up cash inflows by just a few days, you can dramatically improve your cash position.

5. Bill your customers as soon as possible

Waiting to bill your customers is a mistake. Don’t let outstanding invoices sit around for too long. Issue them as soon as possible. The quicker they’re out the door, the quicker they can be paid by your customers. For example, if you perform a service during the month, get into a habit of issuing invoices at least twice a month instead of waiting until the end of every month.

6. Offer invoice incentives.

Give your suppliers incentives. Offering incentives can look different to different suppliers. For example, you could offer discounts or a flat fee for customers who pay within a given time frame. This could be from $5 off to 5 percent off, depending on the margins you have available. The bottom line is factoring in what’s more important — keeping your extra margins intact or incentivising better cash flow.

7. Implement a late payment charge

Don't be afraid to implement and enforce a late payment charge. Arguably one of the better incentives to pay your bills on time is the concept of having to pay more than the normal fee. This fee doesn’t have to be outlandish—sometimes the gentle push of a few dollars extra can do the trick.

8. Increase your sales price

Consider increasing your sales price if cash flow timing isn’t the issue, but rather the amount – consider if there is evidence that you’re priced too low. Some of these indicative factors include lower than average profit margins or no profit at all.

If you are pricing your product too low, you may notice that you aren't producing a profit at the end of each quarter or not growing your profit with your growing customer base. Remember to:

Consider your operating costs
Consider your revenue and profitability goals
Perform a competitive analysis
Consider what a customer is willing to pay

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9. Increase your sales market size

Growth is a part of the small business journey and if you are trying to expand your business (and your profits), it’s worth examining your current market size. Ask yourself:

What and where is my current market?
What are my ideal next steps?
What is my competitor’s market?

Once you’ve answered these questions, you should have a clear idea about where to explore next as you grow your market capacity. This includes:

Expanding your advertising reach
Exploring additional sales channels
Starting a promotional campaign to drive interest in your product

10. Build a sales funnel

A buying customer has already proven that they like your brand and product. So why not draw them in with more of your additional offerings? This is where a sales funnel comes into play. A sales funnel:

Takes your customer on a journey of your additional products
Possibly offers an incentive (like free shipping) to draw them in
Hooks them with a bundling offer like an accessory for your product
Offers them the opportunity to add additional items to their current purchase

11. Reward your long-time customers

Incentivise and reward your long-time customers, as these loyal customers can be the bread and butter of a small business brand. Through repeat buying habits and word-of-mouth marketing, long-time customers are an important part of your business. So why not reward them?

Some ways you can reward long-time customers include offering:

Discounts
Free shipping
Special shopping events
A loyalty program
Freebies

12. Increase output speed and efficiency

Increasing your output and delivery efficiency can help reduce cash flow turn-around times. In today’s society, shipping time and efficiency can make or break your small business (thanks, Amazon). Here are some tips to increase efficiency:

Streamline processes by combining them
Automate using business process automation software
Eliminate human error by implementing checks and balances

For speed output, on the other hand, you’ll need:

Effective shipping and packaging methods
Competent suppliers to produce products and materials
Seamless product creation processes

13. Leasing instead of buying

Take a more conservative approach when considering equipment and supplies. You can help improve your cash flow by not depleting your cash reserves on things like equipment or tools, and instead opt for leasing. This can include machinery, tools, and vehicles. Many times, suppliers will offer small businesses the option to lease rather than buy. Leasing works if you:

Only need the equipment for a short amount of time
Don’t have the cash available to purchase the equipment outright
Know you will need to update the equipment over time

14. Create better relationships

Build better supplier relationships to lock in great prices and open the door to negotiations. Whether it’s with your suppliers, landlord, or customers, the better your relationships, the easier you’ll find it to make and sell your product. Some tips for creating better relationships are:

Improve communication
Consistently provide quality services and experiences
Be polite and personable

15. Ask for discounts

One benefit of having established relationships is being able to ask for favours, like discounts on your supplier’s invoice. For example, a construction company may ask a supplier for a discount in return for making them their sole supplier for the needs of the site. While the supplier may lose some margins upfront, what they gain is consistent business.

Continue to look for improvements

Improving your cash management system requires time and effort, but with the right plan in place, your work will pay off. Taking advantage of an automation software like QuickBooks can yield tremendous advantages when monitoring collections and improving your cash flow. Use these tips to forecast your cash needs, speed up cash collections, and avoid borrowing money to operate your business.

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