12 Strategies To Improve Cash Flow
Cash flow is the mainstay of your business. But what if you have negative cash flow? These 12 practical tips will help you improve your business's cash flow.
If you’re reading this blog, then you already know how important cash flow is. 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 to learn how to improve your cash flow!
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12 Best Ways 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 12 practical tips to help you improve your business’s cash flow.
1) Send Invoices Right Away
Sales and invoices are the lifeblood of a small business. You can’t get paid if you don’t send invoices. It’s as simple as that.
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. Software such as QuickBooks Online and Zoho Books both offer great invoicing capabilities that can help you speed up your invoicing process and increase your cash flow.
Our comprehensive accounting software reviews cover QuickBooks products, Xero, Freshbooks, Sage, and more of the top cloud-based and locally-installed accounting solutions on the market today. If you want a quick peek at the top contenders, check out our accounting software comparison chart.
2) Get Customers To Pay Invoices On Time
Another key to increasing your cash flow is getting your customers to pay their invoices on time. We know this is easier said than done, but there are plenty of practical strategies to increase the likelihood of getting your invoices paid faster. Here are some of our top invoicing tips:
Follow Up With Invoice Reminders
Make sure you remind your customers when their invoices are due. 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.
Give Your Customers Incentives
Consider offering a discount to customers who pay their invoices before a certain time. If your invoice terms are Net 30 (due 30 days after the invoice is sent), but you really want 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 their invoices faster, 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 might even take it a step further and include a specific due date to eliminate any confusion. Have a late payment penalty in place for customers who exceed the due date. Not only will this help increase your chances of getting your money, but it will also set you apart as a professional.
When it comes to late payment penalties, 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.
Consider Invoice Factoring
If the above strategies don’t work, or you need cash right away, another option is invoice factoring. Invoicing factoring is the process of selling your unpaid invoices to a company in exchange for immediate cash. The factoring company takes a small cut of the money you earn, but the payoff is that you aren’t stuck waiting on customers.
Invoice factoring can be a great cash flow solution, as can invoice financing.
3) Increase Prices
If your cash flow is poor, it may be time to consider increasing the prices for your products or services. Ask yourself:
- What are my competitors charging?
- Have the prices for equipment or inventory increased?
- How much staffing does my inventory assembly or services require?
- Do my prices compensate for the time put into my creating my products?
- Are my prices too low? Do my products come off as cheap or valuable?
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. In some cases, lower prices can also make your company seem less qualified.
Even if your prices seem fine now, it’s more important than ever to continue to keep an eye on current market pricing and trends and adjust your prices accordingly. Supply shortages on everything from food to building supplies as a result of the pandemic have led to rising costs for businesses. Failure to adjust your pricing to account for these increased costs can spell disaster for your business. So 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.
4) Expand Sales Market
Another solution to increase your positive cash flow is to brainstorm new sources of income. Get the dream team together, sit down with some coffee, and consider new ways to expand your sales market. Here are a few new sales possibilities to get the ideas rolling:
Add New Services Or Products
Think about the current items or services you offer and consider if there are other items or services you think would be a good addition to your business. Think outside of the box and consider alternative ways to earn income as well.
Maybe your coffee shop could start offering homemade lemonade for the summer, or maybe your event planning service could add a cleaning service to maximize business. Your office might even be able to rent out its large outdoor space for parties and events on the weekends when it’s not in use. Get creative about new ways your business can generate income, which will in turn increase cash flow.
Address Your Pandemic Challenges
When you’re brainstorming new products and services, think about how the pandemic has affected your business. Did your restaurant shut down as a result of the pandemic? Are fewer customers coming to shop in your store? Look at how COVID has impacted your business, and brainstorm ideas to bring in new revenue streams.
If your restaurant is struggling, consider adding takeout or delivery services or even selling “take and bake” goods or local produce and products to sell in-store. If you own a retail store, consider adding an online shop that offers curbside pickup and/or shipping. With a few new products or services, you can potentially boost your incoming cash flow.
Create A New Marketing Strategy
If the products you offer are already spot on, perhaps your marketing could be expanded. Think of new ways to get the word out about your business. Consider if there are any other groups of people that could benefit from what your business offers. Bringing in more customers is a great way to bring in more cash flow.
Encourage Customers To Buy More
Another great way of improving cash flow is getting your existing customers to spend more. There are two ways to do this:
- Bundle Items: Sell similar items together to encourage increased spending.
- Advertise Related Products: If you use an eCommerce platform, advertise additional products that the buyer “may be interested in” or that “others also purchased.”
Both of these can be great ways to expand your existing sales (rather than having to move into a whole new sales market). If you want to start advertising related products or selling your products online, check out our top eCommerce recommendations.
Don’t Forget Your Loyal Customers
Another great way to expand your market is by letting happy customers do it for you. Encourage loyal customers by offering discounts or implementing rewards programs, such as stamp cards for multiple purchases. Also, consider implementing a referral program. This way, you can encourage your loyal customers to grow your business for you through word of mouth.
5) Reevaluate 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 four tips for reducing your business’s operating expenses so that you have more cash to spare.
Cut Out Unnecessary Expenses
Take a careful look at your cash flow statement and analyze your company’s business expenses. Ask yourself these two questions:
- Are these expenses necessary?
- If they are necessary, is there a cheaper alternative?
Carefully consider your current expenses. Cut out any that are unnecessary and try to minimize the necessary expenses as much as you can. It may seem difficult to do, but you (and your wallet) will feel much better knowing that you’re managing your cash flow and expenses effectively.
Streamline Your Business Processes
Another important aspect of managing your cash flow is making sure your business is running as efficiently as possible. Focus on cutting time, not just costs. Analyze all of your current business processes and judge how efficient the current process is to see if there’s any way to speed up that process.
Maybe that means implementing accounting software to send invoices faster or rethinking your employees’ inventory assembly process. By using time efficiently, you can get more done, spend less on wages, and avoid excessive overtime pay (which can put a huge dent in your business’s cash flow).
Purchase More Efficient Equipment
One way to increase your company’s speed and efficiency is to purchase better, updated technology and equipment. While it may cost a bit to purchase the equipment initially, you will save time, which cuts back on wage expenses. This may also lead to increased production or the ability to take on extra projects, leading to more incoming cash.
Looking for equipment financing? Check out our comparison of the top equipment financers for small businesses.
Consider Leasing Equipment
If you don’t have the cash to flat-out buy equipment, or you don’t qualify for a working capital loan, it might be worth considering leasing equipment. In general, we tend to advise against leasing hardware as it can get expensive. But in some situations, leasing might be a viable solution. You lose the advantage of having the equipment as a fixed asset for your business, but you could gain lower monthly payments, which may be what you need to keep your cash flow in check.
6) Talk To Your Vendors & Suppliers
Purchasing supplies and inventory may be crucial for your business, but are you overspending? 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, especially those with whom you have a good relationship, may offer discounts for buying inventory in bulk. These can definitely be worth taking advantage of, so don’t be afraid to ask your suppliers if they have any deals.
Negotiate Better Credit Terms & Prices
If you have a long-term relationship with your vendors and/or suppliers, consider asking about discounts. In addition to bulk inventory rates, you may be able to score other discounts, lower prices, or better terms.
Compare Your Other Options
In some cases, you may find it’s time to shop around for other vendors and suppliers. If your vendor isn’t willing to renegotiate pricing or terms, for example, you might want to see if you’re getting the best deal. In the wake of the COVID pandemic, you may have noticed higher prices, delayed deliveries, or item shortages from your current vendors and suppliers. If these are recurring problems that impact your business, it may be worth taking the time to explore other options for your business.
7) Liquidate Old Inventory
Inventory is one of the largest business expenses you might encounter. You need inventory to make a profit, but you want to make sure the inventory you’re buying is actually selling. Carefully consider which products sell well and which you have a hard time turning over. Take a look at your 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 getting rid of, consider liquidating the items. Any money coming in is better than no money.
8) Pay Vendors At The Right Time
Be strategic about when you pay your vendors. If your vendor offers a discount for paying early, be sure to pay in the required time to save some money. If the vendor doesn’t offer a discount, pay when it’s most favorable for your business.
Say your bill is due on June 1st. Your cash flow statement records show that May is a slow month for your business, but June has a history of higher sales. Pay your bill the last day it’s due so that you can report positive cash flow for May.
If you need even more time to pay off bills, you can also consider paying with a business credit card. This way, you can pay off the expenses over a period of time rather than all at once. Take a look at our business credit card reviews to find the right card for you.
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.
10) Consider A Cash Back Business Credit Card
Using a cash back business credit card can be a strategic way to earn cash on your expenses. As long as you use the card wisely and can afford to make regular (if not full) payments each month, a cash back credit card is easy money. There are several great cash back rewards cards out there that can be great for small businesses.
11) Take Out A Small Business Loan
Another option to increase your small business’s cash flow is to take out a short-term loan or line of credit. With a short-term loan, a lender gives you a lump sum of money that is paid back in regular installments over a short period. With a line of credit, a lender grants you a max borrowing amount that you draw from any time you need cash; payments are made only on the money used.
While the prospect of owing money may make you squeamish, there are several great reasons to take out a cash flow loan:
- Expand your business
- Purchase inventory
- Take on a new, profitable project
- Purchase new equipment
- Unexpected expenses
- Cover off-season slumps
If a loan sounds like a good cash flow solution for your business, check out our top small business lenders to find the right loan for you.
12) Get A Long-Term Cash Flow Solution With An EIDL
If you want a long-term financing option, consider applying for the Small Business Administration’s Economic Injury Disaster Loan (EIDL). These loans can provide your business with up to $2 million that can be used as working capital. If the COVID-19 pandemic impacted your business, you might qualify, provided you meet all other requirements set by the SBA, including your business’s size and credit history. EIDLs have a fixed interest rate of 3.75% and 30-year repayment terms.
Applying for an EIDL is easy and can be done online directly through the SBA’s website. If you were hit particularly hard by the pandemic and have a business in a low-income area, you may also qualify for an EIDL grant, which doesn’t have to be repaid. Even if you don’t qualify for an EIDL, you may still receive a grant if you meet the requirements of the SBA.
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.
Looking for more ways to strengthen your cash flow? Get started by learning how to analyze your business’s cash flow. By tracking your cash flow and taking steps to improve and maintain it, you’ll be on track to running a more successful business. Good luck!