Since you’re reading this, we assume you already know what the biggest challenge for small businesses is – cash flow. Even otherwise successful businesses with healthy revenues and profits can struggle with cash flow.
It’s no good having a large amount of accounts receivable if you don’t have the cash on hand to pay for upcoming liabilities. Fail to solve your cash flow problems and you risk heading into insolvency.
To prevent your business from falling victim to a weak cash flow, follow as many of these steps as you can.
- #1 Try to reduce your outgoings
- #2 Forecast as accurately as possible
- #3 Send invoices as promptly as possible
- #4 Consider invoice finance
- #5 Incentivise customers to pay early
- #6 Penalise customers who pay late
- #7 Negotiate terms with your suppliers
- #8 Use a business credit card
- #9 Take out a business loan
- #10 Hire or lease equipment or machinery
- #11 Optimise your stock/inventory
- #12 Charge your customers more
- #13 Open a business savings account
#1 Try to reduce your outgoings
It seems like an obvious one but it’s arguably the most effective strategy for improving your business’s cash flow. If you look hard enough, you’re likely to find some non-essential expenditure which can be either reduced or cut completely.
Money Crashers have a great guide on how to reduce your business’s outgoings.
#2 Forecast as accurately as possible
If you know what’s coming, you can plan more effectively for it. By creating a cash flow forecast, you’ll have a good idea of what to expect from your business’s cash flow in the near future – and you’ll have plenty of time to mitigate any potential bottlenecks.
Obviously, no one can see the future. But it’s important to make your forecasts as accurate as they can possibly be. Try to be conservative when it comes to sales projections and be careful to not miss out any expenses you’re likely to need to make.
If you want to get better at forecasting your sales, this ultimate guide from HubSpot should help.
#3 Send invoices as promptly as possible
Waiting for accounts receivable to come in is a major cause of cash flow problems. So to speed things up as much as possible, try sending your invoices to your customers as soon as possible.
That way, you can help to speed the process along. The sooner your customers are invoiced, the sooner it’s likely they’ll pay.
#4 Consider invoice finance
Even if you invoice them quickly, customers can’t always be relied upon to pay up straight away. They might have cash flow issues of their own! Invoice finance can be a good way to unlock this money a little earlier.
With invoice financing, you can effectively sell your accounts receivable to a lender in return for a lump sum. When the customer pays their invoice in full, that money goes straight to the lender instead. Obviously, the lender takes a small percentage for their trouble – but that should be outweighed by the benefits of having the cash earlier.
Hilton Baird Financial Solutions have put together a handy, simple video which explains how invoice finance works.
#5 Incentivise customers to pay early
To further reduce the time you spend waiting to be paid, offer your customers incentives for paying their invoices early. For example, you could offer them a small discount on the total amount if they pay you within seven days of getting the invoice.
This post from InvoiceBerry has some great tips for how to encourage your customers to pay as early as possible.
#6 Penalise customers who pay late
Call it the carrot and stick approach – make it pleasant for customers who pay you quickly and unpleasant for customers who you late!
Consider instituting a late payment penalty for customers who don’t pay you within 30 days. Make the penalty clear-up front so they know what to expect.
If you need tips on how you can penalise late payers, check out this post from Small Biz Ahead.
#7 Negotiate terms with your suppliers
Paying suppliers is a necessary part of running a business. But that doesn’t mean you should pay them everything you owe straight away. Your suppliers are also running businesses of their own, so they understand the challenges caused by a poor cash flow.
Ask if they’re willing to give you flexible payment terms. For example, you could pay 20% of the balance up front, 40% when you receive the stock and the other 40% after 30 days.
These top 10 tips for negotiating with suppliers from the Business Advice website should come in handy.
#8 Use a business credit card
Another great way of boosting your cash flow is to use a business credit card for as many business purchases as you can. Most credit cards come with a grace period of around 21 days, meaning you can delay paying your bill without worrying about interest charges.
And there’s also the flexibility of spreading the repayments out over a longer period of time. Just don’t let it get out of control – try to pay the credit card off as quickly as it makes sense to do so, otherwise you’ll risk harming your credit score.
#9 Take out a business loan
Sometimes all you need is a quick injection of cash, and a business loan can provide you with just that. With a short-term loan, you can get the funds you need without the burden of debt hanging over your business for years to come.
To see how much you can borrow from us, apply today. You could have the capital you need within two business days.
#10 Hire or lease equipment or machinery
If you need expensive gear for your business, you can severely harm your cash flow by buying it outright. All that cash will be tied up and won’t be free to be spent on other things. To avoid this, you should think about hiring or leasing the equipment instead.
If hiring isn’t an option and you need to buy it, ask yourself if you necessarily need to buy new? Used equipment can be just as good – and obviously much cheaper.
#11 Optimise your stock/inventory
Buying new stock in bulk saves money and can give you more margin to play with. However, it also ties up a large proportion of your cash. Take your eye off the ball and you could find yourself asset-rich but cash-poor.
Go for the best deals but don’t overburden yourself with stock. Think about how long it’ll take you to convert that stock into cash again. And don’t forget to take seasonality into account – don’t over-stock just before a quiet period.
#12 Charge your customers more
Increasing your prices can be a risky strategy, but it doesn’t necessarily mean your sales will tank. With every product and service, there’s a certain degree of price elasticity. You may be able to increase your prices enough to boost your revenue without losing sales.
Just don’t go overboard – if you’re too ambitious with your price increases, you might put customers off and end up worsening your cash flow situation!
Check out this post from ThriveHive for advice on how to increase your prices without ticking your customers off.
#13 Open a business savings account
When your cash flow is particularly good, you might be able to use the money you have on-hand to earn a little more for later. By opening a business savings account, you can earn interest on stockpiled cash.