One of the biggest challenges of a small business owner is to ensure having positive cash flow month on month basis.

Even profitable companies experience cash flow problems when debts are due before receivables come in. This scenario describes a classic cash flow problem that can lead to bigger problems, like making payroll and being put in a situation where creditworthiness is brought into question. 

To keep cash flow at a manageable rate, it is wise to consider and implement strategies that tackle these issues before threatening your business. Wise choices in some instances could include offering discounts to customers for early payment, forming a purchasing cooperative with other similar businesses,  implementing card payments for bill paying, having an online accounting software such as QuickBooks to send invoices as the work are completed or even asking for payment upfront. Online accounting software can help you do these tasks automatically and accurately, thus ensuring collecting the payments on a timely basis and thus improving cash flow. 

Let’s go through the cash flow improvement strategies in detail. 



Cash Flow Strategies

Leasing Rather than Purchasing 

On the surface, this may seem counterintuitive, but leasing, which involves paying in small increments, helps improve cash flow. As a bonus, lease payments may be considered a business expense, which allows you to write off the lease expense on your taxes.

Discounts for Early Payment 

Offering discounts to customers who pay their bills ahead of time can have a powerful impact on relative cash flow, creating a win/win for you and your clients. 

Cover Yourself with Client Credit Checks  

If a prospective client prefers not to pay by corporate check (or cash), it is recommended that you conduct a credit check before making any agreements with the customer. If the client comes to you with poor credit, you can assume the payments will be coming in late. Late payments will your business cash flow.  

Create or Join a Buying Cooperative

This gives you a power-in-numbers advantage when you join with other companies wanting to pool their cash to negotiate for lower pricing with suppliers. This tactic mimics the strength experienced by large firms that buy in bulk and enjoy the benefit of big discounts.

Audit Your Inventory

List the goods you have been purchasing that aren’t moving up to pace with your other products. These slow movers can tie up your cash and cripple your cash flow. Instead of buying more of what doesn’t sell, unload it out of inventory, even if that means you need to sell it at a discount. If you have an emotional tie to these underperforming products, be objective about what you need to do rather than being subject to it.

Invoice factoring in cash flow

Invoice factoring is an option to improve cash flow. Especially for a new business with more cash flow, cash outflows can be high when you invest in various aspects of the business. It can significantly impact working capital to keep the business running. 

Online accounting software such as QuickBooks can provide you with real-time information on cash inflow and cash outflows in your business so that you can make a decision like- should you increase the prices or lower prices.

At the point of sale, consider giving payment options to your customers. When you offer more payment options, such as card payments, PayPal, BACS, your customers are more likely to pay earlier because you are giving them a choice.

Also, consider giving them more options to pay in instalments, making clear the payment terms. This way, they may be able to afford your services as they may also be a new business and do not have a positive cash flow at their end. 

These strategies will help you avoid having unpaid invoices and running into cash flow problems. If you have unpaid invoices at your end, it means you don’t have positive cash flow and instead have negative cash flow. This will increase the accounts receivable balance. You have more accounts receivable balance than actual cash in the balance sheet.

 And this will impact your accounts payable. Meaning your suppliers will start chasing for payment.

Invoice and Spreadsheet on two laptops. Photo by Andrey Popov | Shutterstock ©2021

Get Those Invoices Out

 Receivables are more likely to make it into your mailbox earlier in the monthly process if you get your invoices out on time. Your invoices should be clear and easy to manage for the recipients. Include the due date in a few places (consider bold type) — and make sure the due date appears at the top of the invoice, above the first fold, and on the detachable payment slip on the bottom. State the payment types accepted (preferably with logo artwork for each payment processor) clearly and mention any late payment fees. Bookkeeping online accounting software such as QuickBooks is one of the apps you can use for invoicing process.

Use Electronic Payments 

 When you pay electronically, you can wait until the morning of the due date to make payment. This buying of time can improve your cash flow. If you use a business credit card that offers a grace period (some as long as 21 days), this will go a long way in increasing your cash flow. You may even get cashback. But don’t let debt pile up.

Get Chummy With Your Suppliers 

 By keeping friendly, regular communications with suppliers, you will have a much better chance of getting improved terms. Offer suppliers early payments if they’re willing to give you a discount. Mastering the art of negotiation is a critical part of doing business and can help you convince suppliers to offer you the optimal deal.

Keep High-Interest Savings Accounts

 This may provide you with liquidity as you grow your cash position. The best high-yield savings accounts offer interest rates as much as 25-times higher than other accounts, earning you more with the money you have in savings.

Consider Increasing Your Prices 

 This scares some business owners concerned it will lead to reduced sales but experimenting with pricing to land on the perfect number (how high customers will go) will always be an unanswered question until you experiment.

Keep a Sensible and Progressive Business Plan. Vibrant cash flow results from operations being run smoothly and efficiently. Ensure that you’re working with all elements — marketing, product and service development, and new customer acquisition regularly to help you anticipate trends and challenges before they impact your profitability.  

Role of Cash Flow Statement

Cash Flow Statement

The Role of Cash Flow Statement

If you want to get a handle on your business’s cash flow, I recommend preparing a cash flow statement and updating it every month. It keeps track of cash inflow and cash outflows. You can analyse cash inflow by who is paying upfront, who is on invoice factoring terms, and who is paying by instalments to have cash flow clarity whether you have a good cash flow. Also, by analysing the cash flow statement from the cash outflows side, you can regularly determine how much costs you are paying as operating expenses. 

If you want to go further ahead, in addition to a cash flow statement, you also want to have a cash flow forecast in place. Having a cash flow forecast allows you to predict your future cash flow position on a real-time basis. This will help you further whether you should consider invoice finance, line of credit, business loan or even offering discounts to customers to ensure your working capital is healthy. 

If you are unsure about your current cash flow situation and want to find out cash flow health, this cash flow quiz will help you raise your cash flow self-awareness. The Cashflow quiz will help you identify the causes of cash flow problems in your small business and ways you can improve cash flow. 


[QUIZ] How healthy is your cash flow? Take the quiz and find out in less than 60 seconds.


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