Cash flow is the mainstay of your business. But what if you have negative cash flow? These 11 practical tips will help you improve your business's cash flow.
Cash flow is the mainstay of your business. Positive cash flow means you can successfully run and grow your business, and negative cash flow — well, that’s bad news.
But what do you do when you have negative cash flow? How do you increase your positive cash flow and get your business where it needs to be? You’ve come to the right place — keep reading to learn some easy strategies to boost your cash flow.
11 Tips To Improve Cash Flow
The key to increasing cash flow is not just bringing in more cash inflows but also limiting your cash outflows. That means you have to manage your expenses just as much as your sales. Read on for 11 practical tips to help you improve your business’s cash flow.
Tip 1: Send Invoices Right Away
Make sure you stay on top of invoicing your customers. The quicker you send invoices out, the faster the cash comes in.
If your current invoicing process is tedious, consider switching to a cloud-based accounting app with attractive, easy-to-create invoices. In addition to invoices, accounting apps and software also include income and expense tracking, budgeting, and other tools to help your business thrive.
Tip 2: Get Paid On Time
Another way to increase cash flow is to get your customers to pay their invoices on time. Get your invoices paid faster with these practical strategies:
Follow Up With Invoice Reminders
Send email reminders a few days before the invoice is due, the day the invoice is due, and a few days after. If they still haven’t paid, give them a call and continue sending reminders. Many accounting programs and invoicing software have built-in invoice reminders that you can automatically send to late-paying customers.
Offer Early Payment Incentives
Consider offering a discount to customers who pay their invoices before a certain time. If your invoice terms are Net 30 but you’d prefer for your customers to pay within a week of receiving their invoice, offer a small discount. Customers looking for a deal will be more likely to pay earlier, which means you get cash faster.
Charge A Late Payment Penalty
Another key to successful invoicing is having a strong invoicing policy. Choose a consistent time when invoices are due (for example, due upon receipt, Net 15, Net 30, etc.) and stick to it. You can also include a specific due date to eliminate any confusion.
As part of your policy, have a late payment penalty in place for customers who exceed the due date. Be upfront about the penalty, when it will be charged, and how much will be charged. You can often include this in the terms and conditions section on your invoice. Do some research on what a typical late penalty policy looks like for your industry before implementing one of your own.
Resolve Cash Flow Issues With Invoice Factoring Or Financing
If the above strategies don’t work, or you need cash right away, consider invoice financing or factoring.
- Invoice Factoring: You sell your unpaid invoices to a company in exchange for immediate cash.
- Invoice Financing: You receive a loan using your unpaid invoices as collateral. Once your customers pay the invoice, you can repay the loan and applicable fees.
While lenders and factors take a small cut of the money you earn, the payoff is immediate cash to resolve cash flow issues.
Tip 3: Increase Prices
If your cash flow is poor, consider increasing the prices of your products or services.
You want to strike a balance between keeping your prices competitive and being fairly compensated for the hard work you and your employees do. At the end of the day, you want to make sales, but you also want to make a profit. If your prices are too low, you may be selling yourself short.
It’s also important to keep an eye on current market pricing and trends and adjust your prices accordingly. While you still want to offer your customers competitive pricing, it’s also important to increase prices as necessary to improve cash flow and keep your business’s doors open.
Tip 4: Expand Your Sales Market
Another solution to increase your positive cash flow is to consider new ways to expand your sales market. Start with these ideas:
- Add New Products Or Services: Get creative about new ways your business can generate income, which will in turn increase cash flow.
- Create A New Marketing Strategy: Consider new target markets that could benefit from your products or services, and brainstorm new ways to get the word out about your business.
- Encourage Customers To Buy More Products: Consider bundling items or advertising related products on your eCommerce platform to increase sales with your existing customers.
- Reward Loyal Customers: Encourage customer loyalty with discounts or reward programs.
- Start A Referral Program: Boost word-of-mouth advertising by implementing a referral program.
Tip 5: Evaluate Operating Expenses
Managing cash flow isn’t just about getting more cash to come into your business. It’s also important to reduce the cash going out of your business as much as possible. Here are a few ways to reduce your business’s operating expenses:
- Cut Unnecessary Expenses: Consider your current expenses, cut out any that are unnecessary, and minimize the necessary expenses as much as you can.
- Streamline Business Processes: Analyze your current business processes for efficiency and brainstorm ways to speed up the process. Focus on cutting time — not just costs — to use time more efficiently, cut wage costs, and avoid excessive overtime pay.
- Increase Efficiency With New Equipment: Updated technology and equipment can save time, cut wage expenses, increase production, and free up bandwidth for extra projects. An equipment loan or lease can help mitigate initial costs, but make sure to weigh out the pros and cons before applying for funding.
Tip 6: Talk To Your Vendors & Suppliers
You could potentially cut costs and boost your cash flow by working out a deal with your vendors and suppliers — or, in some cases, shopping around for other options.
Ask Suppliers For Bulk Inventory Rates
Some vendors offer discounts for buying inventory in bulk. Buying in bulk can add up to huge savings, so don’t be afraid to ask your suppliers about bulk discounts.
Negotiate Better Credit Terms & Prices
Bulk inventory rates aren’t the only way to save money. Ask your vendors about additional discounts, lower prices, or better terms.
Compare Options For Vendors & Suppliers
If your vendor isn’t willing to negotiate, consider looking for better terms, prices, and discounts. You should also shop around your options if your current vendors or suppliers continuously increase prices, have delayed deliveries, or have shortages of items that are crucial for your business’s success.
Tip 7: Liquidate Old Inventory
You need inventory to make a profit, but you want to make sure the inventory you’re buying is selling. Consider which products sell well and which you have a hard time turning over. Look at sales patterns to see when your busy and non-busy sales times are and order inventory accordingly.
If you have any old inventory that you’re having a hard time selling, consider liquidating the items.
Tip 8: Pay Vendors At The Right Time
Be strategic about when you pay your vendors. If your vendor offers a discount for paying early, pay within the required timeframe to save some money. If the vendor doesn’t offer a discount, pay when it’s most favorable for your business.
Maverick Tip: Here’s how to make your vendor payments work for you. Let’s say your vendor bill is due June 1. If May is a slow month for your business and June has a history of higher sales, pay your bill on the day it’s due so you can report positive cash flow for May.
If you need more time to pay your bills, consider paying with a business credit card. This way, you can pay off the expenses over a longer period rather than all at once — and even score rewards in the process.
Tip 9: Open A Business Savings Account
If you don’t have one already, open a business savings account where you can earn money on interest. This is a simple way to generate a bit of extra cash, and it’s a smart way to ensure you always have a cash flow cushion for your business.
Tip 10: Use A Cash-Back Business Credit Card
Using a cash-back business credit card can be a strategic way to earn cash on your expenses. A cash-back credit card is easy money, provided you use the card responsibly and make on-time payments.
Tip 11: Take Out A Small Business Loan
A short-term loan or line of credit is a quick and easy way to boost cash flow. A lump-sum business loan can be used to make larger purchases (such as equipment), while a line of credit offers flexibility for unexpected cash flow shortages or any general business purpose.
Taking out a loan or line of credit can lead to a cycle of debt, so make sure to weigh the pros and cons and consider all costs. You should also have a purpose for seeking funding, such as:
- Expanding your business
- Purchasing inventory, equipment, or supplies
- Taking on a new, profitable project
- Covering unexpected expenses and seasonal slumps
How To Identify & Prevent Cash Flow Issues
While cash flow issues are sometimes inevitable, being aware and proactive can help prevent a minor cash flow issue from turning into a major problem. Here’s what you need to know about identifying and preventing cash flow issues in your small business.
Know The Early Warning Signs Of Cash Flow Problems
Early warning signs of potential cash flow problems include:
- Waiting to pay bills or payroll until big payments come in
- Carrying a large accounts receivable balance
- Having numerous customers that don’t pay invoices on time
- Relying heavily on business credit cards or other financing
If you’re facing one or more of these issues, it’s important to take steps now (start with our tips above!) to prevent ongoing problems that could negatively impact your business.
Perform Cash Flow Analysis
Tracking inflows and outflows of cash through cash flow analysis is an essential step to tracking the financial health of your business.
The best way to analyze cash flow is to create a cash flow statement run, which summarizes and analyzes your business’s operating cash flow, cash flow of investment activities, cash flow of financial activities, and net cash flow.
Establish Good Cash Flow Habits
Increasing cash flow isn’t just about increasing profits and sales. Cutting expenses and keeping costs in check are great ways to make your profits and sales go farther.
Other good cash flow habits to follow include creating a business budget, keeping good accounting records, and regularly auditing business expenses.
The Bottom Line On Improving Cash Flow
All of these tips can help you manage and increase your cash flow. Whether you decide to focus on growing your sales, decreasing your expenses, gaining capital — or a mix of them all — you’re well on your way to improving your cash flow.
