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7 Ways to Improve Your Business Cash Flow

By Heather Jennings

3 min read

A strong cash flow is essential for small businesses to stay ahead. Here’s how to manage the money flowing in and out of your business.

Improving your cash flow not only makes it easier to plan and budget for future growth, but it also gives you the money you need to handle day-to-day business fluctuations. From staying on top of accounts receivable to extending lines of credit, there are a number of ways to improve cash flow.

1. Create a Cash-flow Forecast

Forecasting your business cash flow helps offset uncertainty by predicting peaks and troughs in your cash balance. A forecast highlights the cycles in your business and predicts your cash flow on a monthly and yearly basis.

First, draw up a list of the payments you need to make over the next year – this may include stock and equipment, wages, rent, loan repayments and taxes. Next, list what money will be coming into the business – this can be anything from customer payments, interest on savings and investments to shareholder investments and tax returns. Finally, subtract your outgoings from your ingoings to see how much money you will have at any given time. For example, your biggest sales month may be in December, but this could be affected by the cost of hiring additional staff at that time.

Having this information on hand means you can look at spreading out big purchases and investments – such as staff hires, marketing campaigns or bank loans – so your cash flow is not affected.

2. Set up a Payment Policy

Introducing a payment policy will speed up the cash coming into your business. Keep your payment terms short to ensure you get paid as soon as possible, and clearly list your terms on all invoices.

Make it as easy as possible for your customers to pay you by offering a range of payment methods. Offering small discounts on early payments may also encourage your clients to pay sooner. Conversely, you should charge interest on clients who pay late and remind them of your terms to avoid it becoming a regular issue.

3. Stretch out Payables

Negotiate with your vendors to pay them within 30 to 90 days. While not all vendors may agree to this, if you can stretch out some of your payables, this will give you more time to bill your own clients and collect receivables before paying vendors.

4. Use Online Tools

Don’t let invoices pile up. Consider using accounting software that will organise your billing schedule. An automated system such as QuickBooks Online will manage all your billings, while you can access the software from multiple devices such as your mobile and laptop.

5. Manage Inventory

Regularly reviewing your inventory will reveal the costs and benefits of holding various stock items. Having too much stock can incur storage costs and lead to a cash-flow deficit, while too little stock can mean lost sales and a breakdown in customer relationships.

Aim to have the right amounts and types of stock to achieve increased sales, new customers and strong cash flow.

6. Reduce Overheads

Negative cash flow is often found in fixed assets with ongoing monthly payments, such as vehicles and business equipment.

Look at leasing company vehicles and machinery instead of owning them outright in order to gain tax incentives and avoid having your cash tied up in depreciating assets. Also check whether you are getting the best deals on insurance, phone and technology services and other regular expenses. Lowering staff overtime and creating a more environmentally friendly workplace to cut down on power and water bills can also reduce overheads.

These changes can increase your monthly cash flow significantly, giving you more money to invest in company assets such as new processes and staff training.

7. Have a Backup Plan

When all else fails, ensure you have a line of credit with your bank in case of emergencies. This will help you cover lapses in cash flow when unexpected situations pop up. But be aware that the credit has to be repaid and will incur interest, so only consider this option if you are confident in the business picking up again in the near future.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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