To run a successful business of any kind, it’s important to ensure that your cash flow is operating as it should. You need to have a healthy cash flow in order to run smoothly and grow. In short, you should be getting all the money you need in (receivables) to cover your payables (such as debts, salaries, utilities and so on) before they are due out. This is vital to be able to pay your bills on time and prevent the problem from spiralling to the point where your business is no longer financially viable. Even the most profitable businesses can run into cash flow issues from time to time. But, there are certain things that you can do to help avoid these issues in your business. In today’s blog post, we’ll be going through 11 effective strategies to improve cash flow in your business. These strategies cover both methods to increase your receivables and reduce your payables, as well as everything in between! So, let’s take a closer look at some of the best things you can do to aid your cash flow.
Top 11 effective strategies to improve cash flow in your business
1. Know what you’re working with
The first thing that you should do before embarking on a mission to improve your cash flow is know what your situation is in the first place. This involves taking a deep dive into your accounts and working out what cash you’ve got going out of your business, and what you’ve got coming in. Do they match up to a positive figure? Or do you have a negative cash flow, with more money going out than in? Take a look into the future, too. What do you expect to receive or spend? Are there certain periods where your cash flow tends to be healthier than others? This will help you put together a forecast, which in turn will show you where you might need to expand your activities in the future in order to ensure that all of your costs are covered and your cash flow is positive. Once you have a clear idea of your current situation, you can move on to looking at the different strategies that will have a positive impact on your cash flow.
2. Understand when you get paid
By doing the activity above and getting to grips with your cash flow, you should already have got to grips with most of your customer payment cycles. In other words, when do you get money in from your customers? It’s likely that each customer will have a different date on which they pay you. It’s vital that you keep up to date with this so that you never miss a month’s payment, and you can promptly chase a client up if you need to. If you’re struggling with your customer payment cycles, is there anything you can do to make them more manageable? For example, could you move invoicing dates so that everyone’s invoice falls on the same date? Whatever you choose to do, ensuring that you always have up-to-date information about when you’re getting paid is a good strategy for helping you to understand your cash flow better.
3. Use electronic payments
When it comes to effective strategies to improve cash flow in your business, this one seems as though it could be a little obvious! After all, nowadays, most payments are done electronically. But you may be surprised at the difference that moving all of them to digital can have. And, even if it is just a small amount, every little it helps. But how do electronic payments aid your cash flow? Well, it’s a much faster way of receiving and recording your payment, especially compared to old-school methods such as cash and cheque. So, you’ll be able to account for this money faster, and use it to help keep your cash flow healthy.
4. Lease, don’t buy
It may seem counterintuitive, but leasing expensive purchases such as equipment, supplies, tech, and machinery can actually be one of the most effective strategies to improve cash flow in your business. It is true that buying something outright, rather than leasing, tends to be the cheaper option in the long run. So, it’s tempting to go with this option every time. But, if you’re trying to improve your cash flow, leasing can be more effective as it means that you are paying a smaller amount every month, and not a large lump sum. You’ll be able to easily forecast your monthly payments, too. And, leasing often comes with added benefits such as extra insurance if something goes wrong, so it’s a good option for more than just freeing up some cash!
5. Consider offering finance plans to your customers
This also sounds counterintuitive, but another one of the effective strategies to improve cash flow in your business is by offering finance plans to your customers. This helps your cash flow in a couple of ways. Firstly, it may help attract new customers who otherwise wouldn’t be able to afford what you offer. And, it gives you a regular payment that you can account for in your forecast. This may be especially useful if you do tend to have periods of the year where your cash flow is poorer than others, as it will give you money coming in even if you’re not selling as much as usual. Of course, you could go the other way and structure your payments so that customers have to pay sooner, therefore giving you the cash quicker- but be warned that this may not be a popular option amongst them!
6. Push for invoices to be paid on time
Getting paid on time is a struggle that virtually every business owner faces. You may be lucky and only have it happen to you occasionally, Or, it could be something that you battle with daily. It’s extremely frustrating, especially as it affects your cash flow and disrupts your forecast. If you are consistently struggling with late invoice payments, there are some things that you can do to help speed payments up. From invoicing straight away to being persistent, all is not lost when it comes to late payments. Have a read of this blog post to find out more:
Six Simple Secrets To Get Paid Faster By All Your Clients
7. Offer a discount for early payment
Similarly, you can encourage your customers to pay their invoices on time by offering a small discount off the total price if they do so. While this seems as though it won’t improve your cash flow in the long run, it’s a great way to get money coming in straight away, so it’s an ideal strategy to use in a pinch. And, it’s something that your customers will also appreciate, so it’s a win-win situation for everyone involved.
8. Can you negotiate better terms with your suppliers?
Often, paying your suppliers is one of the largest payables that a business experiences. Of course, it’s important that you choose quality suppliers to ensure that your business is, in turn, of high quality. Often, this means that going with the cheapest supplier isn’t always the best option. Having said this, there are some ways to help reduce your costs. If you are able to strike up a friendly, professional relationship with your suppliers, you’ll be in a much better position to negotiate with them for lower costs as you continue to stay loyal to them. And, lowering your costs in whatever way you can is one of the most effective strategies to improve cash flow in your business.
9. What interest does your business savings account offer?
If you’re looking to improve your cash flow, it’s a good idea to open a high-interest business savings account. This way, if you do have any spare cash, you can put it in this account and it will earn interest while it sits there. So, you will end up having more money overall to pay your expenses when needed, or invest back into your business to help it grow. Plus, building up a savings pot for your business is a good way to ensure that you always have something set aside to cover your payables if you do run into temporary cash flow issues down the line.
10. Is your inventory actually selling?
Often, one of the largest expenses that a business faces is buying up inventory to sell. So, when you’re making a big investment such as this, it’s important to make the right choices. In other words, you want to ensure that the inventory that you’re buying is what’s actually selling. So, take stock of your current inventory. Are you still buying things that aren’t selling well? If so, now is a good time to stop doing so, and see what you can do to clear your inventory backlog and free up some cash flow at the same time. You can also use your cash flow forecast to suggest any items which sell better at some times of the year than others, and use this knowledge to order your inventory accordingly.
11. Effective strategies to improve cash flow in your business come down to increasing incomings and decreasing outgoings
Essentially, all strategies to improve cash flow boil down to one of two things. You’re either decreasing the money that you spend, or increasing the money coming in. So, all you really need to do to improve your cash flow is look at strategies that help you to do this. Perhaps you need a new marketing plan to attract new customers to your business. Or, maybe you need to look at cutting costs that you’re paying for utilities, rent, or other charges. You could even consider adding new products or services to your range in an effort to increase the cash that’s coming in. And what about your existing customers? Is there anything you can do to encourage them to repurchase from you, such as a discount code, referral programme, or other rewards? The steps that you take will be different for each and every business, so it’s all about finding the right balance for you that leads to an improved cash flow overall!
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