16+ ways to improve cash flow and increase profitability

Why is improving your cash flow important?

Developing strategies to improve cash flow is important because it frees up capital to do the things required for your business to succeed, like pay expenses and invest in growth. When you have plenty of cash inflows, you can:

• Pay your rent, suppliers, utilities, and other bills on time
• Make payroll to appropriately compensate employees on payday
• Service debt by making payments on your loans to your creditors
• Invest in growth initiatives such as marketing your products or buying new equipment
• Create a rainy-day fund, which will give you a financial buffer so you can weather unforeseen circumstances and not worry about your business running short of money when you need it
• Show lenders, suppliers, and investors that your company is financially stable
• Reinvest in your business so you can set yourself up for greater future success

If you have consistently poor cash flow, you may be unable to cover these essential costs. Regularly being late with rent or payroll, missing payments on your debt, working without a financial cushion to get through hard times, and failing to invest in business growth will eventually cause your company to fail. 

Tools like QuickBooks Payroll streamline the process of paying workers, allowing you to run payroll in as little as five minutes and effortlessly comply with payroll tax obligations. Ultimately, you need cash available to pay workers to avoid issues. 

Without sufficient cash, you could face collection activities, employee walkouts, Department of Labor actions for nonpayment of wages due, or simply stagnation because your company is not investing in growth.

How to improve your cash flow [16 tips]

Learning how to improve cash flow doesn't have to be difficult. There are many techniques your company can implement to maximize cash inflows.

1. Implement a collection policy

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

Your accounting software should provide an aging schedule for accounts receivable, which groups your receivables based on when each invoice was issued. You should monitor this report and implement a collections process by emailing and possibly calling 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 inflows.

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

3. Push efficient inventory management 

When exploring how to improve cash flow in a business, managing inventory efficiently is a good option. 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 preplan 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 bank account. If you can speed up cash inflows by just a few days, you can dramatically improve your cash position.

That “just got paid” feeling just got better. Get paid twice as fast when you accept credit cards and bank transfers with QuickBooks Payments. 

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 per month instead of waiting until the end of every month. 

6. Offer invoice incentives

Give your vendors incentives. Offering incentives can look different to different vendors. 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% off, depending on the margins you have available. 

The bottom line is factoring in what’s more important—keeping your extra margins intact or incentivizing better cash flow.

7. Implement a late payment charge

Don't be afraid to implement and enforce a late payment charge. The concept of having to pay more than the normal fee is arguably one of the better incentives to pay your bills on time. 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. Also, consider if there is evidence that you’re priced too low. Some of those 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

9. Increase your sales market size

Increase your 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:

• Finding new audiences to connect with helps you introduce your product to more potential customers
• Providing different shopping experiences, such as online or in person. Explore different ways to get your product into their hands
• Leveraging word-of-mouth advertising to generate as much positive buzz as possible about your products or services 

10. Create sales funnels 

Build a sales funnel. If you have a buying customer, you have one that is ripe for purchasing, meaning they’ve already proven that they like your brand and product. So why not draw them in with more of your additional offerings? A sales funnel:

• Takes your customer on a journey into 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 customers the opportunity to add additional items to their current purchase, which often leads to a larger sale 

11. Reward longtime customers

Incentivize and reward your longtime 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, longtime customers are an important part of your business. So why not reward them? 

Some ways you can reward longtime 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 vendors to produce supplies
• Seamless product creation processes

13. Leasing instead of buying

Take a more conservative approach when considering equipment and supplies. You can help improve 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, vendors 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 vendor relationships to lock in great prices and open the door to negotiations. Whether it’s with your vendors, 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

Push for discounts. One benefit of having established relationships is being able to ask for favors, like discounts on your vendor’s invoice. It’s not uncommon for longtime partners to ask for favors from one another. 

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 vendor may lose some margins upfront, what they gain is consistent business. 

16. 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 automation software like QuickBooks can yield tremendous advantages when monitoring collections and improving cash flow. 

Use these tips to forecast your cash needs so you can learn how to improve cash flow in a small business, speed up cash collections, and avoid borrowing money to fund your company's operations.

Myths of improving cash flow

When you're working to boost your business's financial health, it's easy to fall for some common misconceptions about the money going in and out of your business. You might think you're doing more business than ever before, so aren't all those sales automatically going to translate to profit? Not necessarily.  

Watch out for these common myths as you look to craft effective cash flow strategies:

• Profitability doesn't equal cash flow. You can show a profit on paper but still lack cash if payments are slow or capital is tied up elsewhere.
• Bank loans aren't always a fix. Borrowing can be tricky and expensive, often masking underlying issues rather than solving them long-term.
• Cash flow management is for all businesses. Even successful, profitable companies need strong cash flow to grow, build reserves, and seize opportunities.
• Cutting costs isn't the only solution. Don't just focus on expenses; boosting incoming cash through better collections and sales is just as vital.

Improving your cash flow is an ongoing process. There's no one-time fix that will solve everything; it requires continuous attention and adaptation as your business evolves.

Use technology and systems for cash flow management

Technology could be the solution for many businesses exploring how to improve their cash flow forecast. Technology can help in many important ways, including the following.

Invoicing and payment tracking

Technology can streamline and automate many aspects of the invoice process and help your company track payments, so you know what is outstanding that you need to collect.

Some of the many ways that technology could help with invoicing and tracking payments include:

• Creating professional-looking invoices 
• Automating recurring invoices
• Tracking invoice status
• Sending payment reminders
• Offering multiple payment options
• Automatically reconciling payments

Automated accounting software like QuickBooks helps with all of these tasks. With the QuickBooks Payments Agent, you can use AI to optimize receivables through smart invoicing, payment reminders, and cash flow forecasting. 

Accounts receivable management

Accounts receivable refers to the money you have coming in from customers that they haven't paid yet. The following tasks are key to successfully managing these accounts: