Business Cash Flow and Tips to Improve it

12 Tips on How to Improve Business Cash Flow

Cash flow management is important for all business owners. Even if the company’s forecast profit is positive, a poor cash flow could leave the business vulnerable. Cash flow is not just affected by revenue, but also how much the business outgoings are. Both of these need to be managed with care to maintain a healthy cash flow.

Methods of improving a business cash flow are discussed below.

1. Offer discounts for early payments

Consider offering customers the chance to get a small discount if they pay their invoice early. Standard payment terms for invoices are often thirty days but by offering a small incentive for early payment such as a ten per cent discount, you will have the reassurance of receiving cash much earlier. It is a win/win situation as your customer will also benefit.

2. Penalise late payments

Late payment penalties could be introduced. If this is the route you want to take, then ensure you have the late fees clearly explained on your invoice. To make things simpler state the exact due date rather than 30 days. Do your research and look at payment terms of similar companies and any legal restrictions to see what the usual penalty is to ensure you are in line with them.

3. Get a form of credit

Business credit cards are a good option for some businesses to help with their cash flow. Credit cards enable you to spread the payments. You could also consider getting a short-term business loan. Although loans should be used with careful consideration, they are an option when you are expanding your business, purchase new stock or equipment. Ensure a realistic payment plan is in place to avoid manageable debt spiralling out of control.

4. Diversify your business

Many businesses have some months which are better than others. Although this is to be expected, you should consider if there are any ways you can diversify your business to try and bridge the gaps between the better performing months. If you have a seasonal product, is there something you can sell during your quieter months that could increase sales? For example, if you own an ice-cream parlour, could you offer a range of hot chocolates during the winter months when ice-cream sales are at their lowest? Ensure your plan complements your current business model and brand.

You could also think about adjusting your existing offering to try and upsell. Perhaps you could combine some of your products and services into a package or bundle.

Both of these methods can be effective ways of increasing your sales without having to change your offering or expand into a different market.

5. Lease items rather than buying them

Leasing items such as equipment and property will be more expensive in the long-term. However, leasing is a great way to improve your business cash flow.
Leasing allows businesses to pay in small instalments which are spread out and often include maintenance programs that will mitigate the risk of downtime.

6. Chase up invoices effectively

Credit control is an important part of managing business cash flow. Debt levels can be a threat to the survival of many businesses. Implementing a robust, effective process to chase outstanding invoices plays a large role in managing cash flow.

Chasing payments is not an effective use of time and can be difficult, so follow up your invoices with reminders. Try not to bombard customers with emails as this can be off-putting, instead, send a reminder a few days before the invoice is due, the day it is due and a few days after. If they still haven’t paid, follow up with a polite phone call.

7. Benefit from good working relationships with suppliers

By maintaining healthy relationships with suppliers, business owners will often find more favourable terms, such as early payment discounts. If you do not ask, you will not get!

8. Time your payments to benefit your business

Be strategic about when you pay your businesses invoices. If you are offered a discount for paying early, take advantage of this. Alternatively, if there is no discount to be gained for early payment, choose the time that suits your business best to pay the invoice.

9. Invoice accurately and quickly

By sending out invoices as soon as you can, you may find companies pay them earlier. Ensure you stay on top of your invoice process as customers cannot pay until they receive one.

Invoicing can be a time-consuming job however by using cloud-based accounting software such as QuickBooks or Xero, you can save your business time by automating invoice creation and tracking. This will speed up your invoice process and improve your team’s efficiency.

You may find that later payments tend to occur due to invoice queries. To avoid this happening, ensure your invoices are simple to understand. This will hopefully reduce the volume of queries your business receives.

10. Increase Prices

You may be hesitant to lift your prices for fear of putting customers off. However, increasing your prices can have a positive effect on your cash flow and will give an idea of how much your customers value your service. This is a strategy to consider if your costs are increasing.

Before deciding on a price increase, ask yourself the following questions:

> What are your competitors charging and how does this compare to your current pricing?

> Have your costs increased?

> Do your prices match the time your workforce spends on the task of creating the product or delivering a service?

> Is your product or service seen by customers as cheap or premium? What is the perceived value of your product or service and what do you want it to be?

Try to strike a balance when it comes to pricing. Think carefully before making changes. You want to make a profit while also providing value for the customer. However, setting your prices too low can be selling yourself short.

11. Review your customer base

Consider conducting a credit check on any new clients you take on. A potential client with a poor credit score could have a negative effect on your future cash flow.

Also, pay attention to loyal customers and spend some time and effort rewarding them. Happy customers are more likely to refer you to their professional connections and friends. Consider a reward scheme or a referral program, which can be a low-cost way to try and obtain new customers.

12. Work with an accountant

It is important that you analyse your cash flow regularly. Accountants are able to help you look through the figures and can advise you on which areas you should focus on.

What’s Next?

Cash flow is the mainstay of your business. Without it you would not be able to pay for salaries or your utilities, so you need to keep an eye on it at all times to ensure it stays under control. If you maintain a positive cash flow or ideally speed up the flow, your business will be in a great position grow. If you need advice about your businesses’ cash flow, give us a call on 0845 880 5678 or email us on website@wrightvigar.co.uk