Cash is king. Your ability to use and re-use your limited cash supply as quickly as possible is critical to improve cash flow and support the successful growth of your business. You may have developed a profitable business but don’t get caught in the growth trap. At times of growth, your cash flow situation will mean the difference between winning or losing.
Don’t wait for a recession to bite or get drawn into a period of growth without first looking to improve your business cash flow. Continuously seek ways to improve your cash flow as part of your standard business operations.
Below, I have listed 20 ways to improve your cash flow, all of which are easily actionable. Some will be obvious to you, some you may not have considered. Feel free to use it as a recurring checklist which forms part of your efficient operational practice.
Top 20 Ways To Improve Cash Flow in Small Business
1. Invoice accurately – Apparent errors on invoices provide one of the most common excuses for paying bills late. So, take away the temptation and get your invoicing right first time.
2. Chase overdue invoices – Don’t drift, chase the day after they are due. Don’t be afraid to ask for payment; it’s your money after all. You’ve kept to your side of the agreement. It’s now their turn to keep theirs.
3. Send out invoices promptly – It is important to send out the right signals to your customers. If you’re sloppy sending out invoices, then they will be sloppily paying you.
4. Early payment incentives – Consider offering cash-on-delivery discounts or prompt payment discounts. Make sure you have structured your original pricing matrix to accommodate this.
5. Appoint a dedicated credit controller – Chasing money can be a full-time task and needs the focus of a single, specifically appointed individual. Passing the task around leaves a chance for individual responsibility to slip through the net.
6. Use debt collectors – But only at the point when you feel that your customer is giving you the cold shoulder. If payment is over thirty days late, it’s unlikely to come at all without some form of positive intervention. If you have exhausted your main credit control procedure, then the account in question should become an ex-customer. Bring on the debt collectors.
7. Factoring – One of the most dramatic ways to improve your cash flow is to ‘sell’ your debtors list to a factoring company who will, in turn, pay you up to 85% of the total outstanding amount straight away. They will, of course, charge interest until they have collected the debt, along with a commission for their trouble. Nonetheless, this is still an option, particularly when in rapid growth.
8. Upsell or cross-sell to your top 20% customers – In other words, look to sell them a more premium item or perhaps a related item that they hadn’t originally considered. It costs relatively little to sell additional goods or services to your top 20% of customers. Sometimes you just forget to ask.
9. Increase prices – Contra to conventional wisdom, it is possible to raise your prices with little fallout. Don’t let the value of your products erode over time. A price rise can’t look knee-jerk or punitive. However, by reminding your customers of the real added value that your products bring them, giving plenty of warning and maintaining a high level of customer service, they will soon forget price rises.
10. Change payment terms – Test the effect of this on new customers by reducing payment terms from, say, 30 days to 15 days. You may be pleasantly surprised by the lack of reaction. Reducing your debtor days by just a few can improve your cash flow significantly.
11. Trim inventory – Each item you hold in inventory could be out there bolstering your cash flow. Speak to your suppliers and ensure that you have the best ‘just-in-time’ service in place. Recheck inventory control systems to ensure you are holding the absolute bare minimum. Reinforce with regular manual checks.
12. Trim stock holdings – While inventory refers to items that your business may need to create products, your stock refers to finished goods ready for sale. Recheck current sales levels against stock holding. Are you holding too many weeks’ sales at any one time? Consider sidelining slow-moving lines.
13. Renegotiate payment terms with suppliers – Unless you are negotiator of the year, there is always a little bit of slack to be reigned in with your suppliers, particularly if you have kept good personal relations with them.
14. Only pay bills when they are due – Often small businesses pay bills on a weekly or monthly basis to suit administration. However, even a saving of a few days can improve your cash flow significantly. So, make your payments at the final hour. However, avoid the temptation to pay late. Apart from being unethical, you will pay in the long run.
15. If you pay sales bonuses, ensure you only pay out when cash is in – Don’t forget a sale is only a sale when the money’s in the bank. Ensure the sales force understand the value of cash to the business. So only pay commission at that point.
16. Pay by credit card – Depending on how desperate the need to improve your cash flow, you can absorb another few thousand pounds through the use of credit cards. Also, credit card payments can offer you some level of protection on purchases. Remember, this is a high stakes strategy and needs managing carefully. Always pay off the full amount at the end of each month; credit card interest rates are uncompetitive against a sensibly planned bank overdraft.
17. Consider barter – Sounds a bit Neanderthal but modern-day barter – exchanging goods for goods and cutting out cash altogether – is surprisingly mainstream and easy to set up with the aid of barter exchanges such as Bartercard.
18. Sell assets – The commercial equivalent of a garage sale. Consider selling vehicles, under-utilised plant and equipment, property. If you don’t need it, it could be working for you as cash flow.
19. Letting out part of business premises – Not an option for many businesses due to limited space or restrictions on lease. However worth considering.
20. Leasing equipment rather than buying – Look to run a lease for approximately the lifetime of the equipment. Leasing is a good option, particularly when interest rates are low. It can have positive tax advantages as well, though take advice on this one.
There are numerous ways to improve cash flow in a small business. The key is to set up a dedicated process to monitor and continuously improve cash flow while your cash is in pretty good shape. Waiting until your business is in trouble before considering cash flow improvements is not recommended.
Don’t discard the seemingly insignificant improvements. The cumulative effect of these savings can make a big difference. So, decide which methods can best improve your cash flow and dig in without delay.
Time is money, after all.