Improve your cash flow
12 Ways on How to Improve Your Cash Flow
Improving your cash flow is essential for any business. This article will discuss seven ways to improve your cash flow and make your life easier.
Cash flow is the lifeblood of any business. It is essential to have a good flow of cash to keep your business running smoothly. Unfortunately, many small businesses face difficulty in maintaining a positive cash flow.
This article will discuss seven ways to improve your cash flow and make your life easier. We hope that by following these tips, you will be able to improve the financial health of your business.
What are Cash Flow Statements?
Cash flow statements are important financial documents that show a company’s cash inflows and cash outflows over a given period. A business can use them to identify cash flow improvements and manage cash flow more effectively. It is essential to know how much money is expected in the business bank account at any point in time.
Cash flow reports can also assess a company’s financial health and make decisions about investment, financing, and other strategic decisions.
Understanding how to read and interpret a company’s cash flow is essential for making sound financial decisions. They can be complex financial documents, but they can be an invaluable tool for managing cash flow with a little bit of knowledge.
The other important financial statements that a business will use to look at its financial health are the profit and loss and balance sheet.
What is a Positive Cash Flow?
Positive cash flow means a company’s cash inflows exceed its cash outflows. It can happen when a company experiences an increase in sales, collects accounts receivable faster than it pays its bills, or reduces its inventory levels.
A company with positive cash flow is considered healthy and can pay its debts, reinvest in its business, and return money to shareholders. If you have a good cash flow, it might be worth opening a business savings account to earn interest.
What is Negative cash flow?
Most businesses experience negative cash flow at some point. It can result from several factors, such as slow sales, high overhead costs, or uncollectible accounts receivable. Whatever the cause, negative cash flow can be a severe problem for any company.
If you are aware in advance, you can do things, including arranging a bank overdraft or small business loan.
Cash Flow Management
Cash flow management is the practice of monitoring and regulating a company’s incoming and outgoing cash flow. It is an essential part of financial management and allows a company to keep tabs on its liquidity.
Knowing the cash position helps a business decide on growing the business, making cuts or purchasing assets.
Here are our 12 top tips on ways to improve cash flow:
1. Complete Customer Credit Checks
It’s so important to screen your customers before extending credit carefully. By completing a credit check, you can get a better sense of whether a customer will be able to pay their bills on time.
This information can help you make better decisions about who to extend credit to, and it can also help you set credit limits and terms that are appropriate for each customer. Taking the time to complete credit checks can help you protect your business’s cash flow and keep your business thriving.
If existing customers are slow-paying, it is worth completing a credit check to ensure they have a good credit history.
Companies can get their consumer credit score from Veriphy.
2. Send Invoices out Quickly
This may sound obvious, but the quicker you send out an invoice, the quicker you will get paid.
Ensure that the invoice is correct and precise on payment terms and how to pay. Sending invoices using accounting software will give you a history of when it was sent and if they have viewed the invoice.
One of the biggest reasons a supplier pays invoices late is that they have not received it or it is wrong.
3. Collect Debt to Improve Cash Flow
This sounds a little obvious, but sometimes the best advice is. Start by going through all your unpaid invoices and see who owes what and give them a call!
Don’t just rely on emails, either. Speaking on the phone makes a huge difference in the success rate of debt collection. If you use cloud accounting software, you will access a list of creditors based on the number of days past due.
You can also send debt collection letters, so any further action is documented and legal if the call doesn’t prove to be fruitful.
It will be possible to set automated payment reminders on most systems, which can do some of the work for you; for more credit control help and advice, read our guide on credit control.
4. Get paid faster
How long are you waiting to get paid? Why? It is YOUR business, so you can choose when invoices are due! Reduce payment terms to what suits you or, even better, get payment upfront where possible.
To help improve cash flow, many small businesses will ask for a deposit or payment on completion of work. An example is that a bathroom fitting company has to purchase the fittings in advance of the job; they might request a deposit. The balance is paid on completion of the work.
Make sure your repayment terms are easy to find; you can add them to your invoices and a link to your terms and conditions. You can also make it clear if you charge interest to late payers.
5. Make Invoices Easier to Pay to Improve Cash Flow
How easy is it to pay you? Do you offer different payment options? Do your invoices have a payment link? Do you accept credit card payments?
By small business owners using payment services such as Stripe or GoCardless, you can integrate electronic payments into your invoicing system. Customers will get a link on the invoice to pay straight away, enabling the use of Android/Google Pay/Apple Pay from their phone.
It can be simpler than expecting bank transfers which can be time-consuming to set up for customers. Also, make sure you give a few options for payment, as this again makes it easier for people to choose the best option for them.
You may also wish to set up direct debits with regular payers, so the money is collected every month without anyone remembering.
Accounting software that makes all the above ideas possible includes FreshBooks, Xero QuickBooks and Zoho Books.
6. Offering Discounts for Early Payments
As well as charging interest for later payers, why not introduce customers incentives for paying early by offering a discount. It can significantly boost cash flow, especially if people feel like they are getting a great deal. However, be aware of profit margins and make sure you don’t sacrifice too much.
7. Have a Flash Sale of a Product or Service
Like big companies, especially in retail, flash sales can work well to increase cash flow. No one needs to know the reason; coincide it with an event or time of year if you wish but make it a deal not to be missed.
A sale can secure an injection of cash into a business if it is a tricky time. It can work for products or services; make sure you have the time or stock to deliver on the sales made and be relentless with the marketing!
8. Create Passive Income
This can be easier for some types of business than others but have a big brainstorming session to develop some ideas. Maybe you have some products or services that can be turned into digital products that can be sold repeatedly.
Creating a course or an ebook, planner, or even merchandise are all ideas for creating a passive income. There may be work in setting these up initially, and you will need to invest in marketing for them, but they will create income with minimal input once set up – especially a course or digital download.
9. Reduce Expenses
One of the biggest cash flow problems can be the amount of expenses a business has.
There are several things you can do to reduce expenses, including:
Reducing stock by not buying more than needed while still meeting customer demand for products and services.
Reducing business costs by not paying for unnecessary operating expenses.
You can also think about making late payments to suppliers, but be sure you won’t have to pay late fees and maintain a good relationship with them.
10. Make Sure you Have a Good Credit History
Having a solid credit history will help you obtain better credit, overdrafts, and business loans. It will help avoid cash flow problems by providing a cash injection if required or paying for items or services on credit.
11. Late Payment Penalties for Improving Cash Flow
We have already looked at customers’ incentives for paying early, but what if they pay late?
Late payments can be one of the biggest problems for cash flow, especially large amounts.
By adding late payment fees, it can help to get invoices paid on time. Ensure that any late payment penalty is clear on both the invoice and terms and conditions.
12. Debt Factoring
How does Debt Factoring Improve your Cash Flow?
We should also mention debt factoring as an option. This is when a company that specialises in debt collections purchases your debt from you. They are then responsible for collecting it, and you get the cash flow straight away, with a set amount deducted as a fee.
It is a viable option for many companies without the time or workforce to have a dedicated credit control or debt collection team. However, make sure you only use a reputable firm and be clear about the legal implications for yourself, your clients, and the factoring firm you choose.
Cash Flow Forecast Template
As discussed above, managing a cash flow statement and up-to-date information is essential to keep a business running smoothly. To help business cash flow management, we created a free cash flow template.
Using the template will help you see if you need to deal with any business cash flow issues before they occur.
Conclusion on How to Improve your Cash Flow
There are many ways to improve a business’s cash flow. One way is to offer discounts for early payments. This can encourage customers to pay their invoices more quickly, which will increase the cash flow.
Another way to improve cash flow is to introduce late fees. It can encourage customers to pay their invoices on time, and it can also save the business money in the long run.
Finally, businesses can also improve their cash flow by offering different ways to pay an invoice. Businesses can increase cash flow and keep their operations running smoothly by taking these steps.
Let us know if you try any of the above ideas or if you have any you would add to the list. Improving cash flow may sound daunting, but you can see that taking action with some relatively simple changes can yield a big difference.
