In business, cash is king. Your business might be doing well and, in the next six to twelve months, you might be expecting to bring in increased revenue and profit. However, if there isn’t enough cash flow to cover company expenses, those potential earnings may not be felt.
With 82% of businesses failing because of negative cash flows, these strategies and methods to maintain a healthy cash flow are vital for survival – take a look below at how to improve cash flow for your business.
1. Analyse your accounts
The first part of understanding how to improve your cash flow is by analysing it. Analysing this data can allow you to identify cycles in your business when sales increase and your cash flow becomes healthier. With a cash flow forecast, you can schedule your cash outflows through methods such as borrowing, arranging the right staffing and making efforts to boost sales during slow periods – including increasing your marketing budget, for example.
Every business needs the latest up-to-date information to analyse cash flow accurately. Many businesses use accounting software to do this, to illuminate data trends. With all the data in one place, this makes it easier to take control of your business’ cash flow.
2. Use electronic payments
Paying with a debit or credit card is the fastest way of receiving payment on purchases. Electronic payment reduces the time you have to wait for cheques or cash deposits to be made, and the hassle of chasing invoices – meaning your cash flow remains regular and healthy.
An alternate method of payment for those who provide equipment or SaaS models, is to offer finance as a payment method for your customers. This means that your customer can pay in manageable monthly payments and you receive the full payment, upfront from the lender, to improve cash flow for your business.
3. Understand your customer payment cycles
Your customers will have varying dates during each month to pay invoices. It is important that this is incorporated into your credit control system. Without this in place, you could miss a customer’s payment run, meaning that you may have to wait another month.
By understanding your customers, you will know those who can pay earlier than others. By negotiating a payment plan for that, you can receive payments earlier, keeping your cash flow in good health. Incentives can help customers pay up earlier, like a small discount if an invoice is paid right away.
4. Invoice accurately
This may seem obvious, but inaccurate invoicing of clients can lead to disputes over payment. With late payments being the biggest cause of poor cash flow, getting the basics right by billing your customers correctly is crucial. Businesses can use Customer Relationship Management (CRM) software to help automate this using account receivable functions with up-to-the-minute data. CRM systems can also send invoices out immediately, which can help to increase the speed at which you receive payment.
5. Credit check customers
Another method of improving cash flow is to conduct a credit check before signing a client to a contract. This will give you an indicator as to whether you can trust the customer to pay their bills on time. Every sale is important to your business, but maintaining a good cash flow is just as important. Late payments will only hurt your business in the long run.
6. Experiment with prices
Increasing prices is not always the answer for improving cash flow as this could reduce sales. However, it is always good to experiment with prices to find the golden number that your customers will go to. Taking a chance on this might surprise you.
7. Review your customer base
It’s important to analyse the customers you have. For example, If you notice that you heavily depend on larger customers with longer payment terms, you could look to change your approach by focusing more on smaller clients who typically pay on time and faster, to avoid future problems or cash flow risks.
8. Invest in the business
Spending money within your business can be beneficial to boost skills, productivity and promotion of your business. By investing in training your staff, their skills improve which could improve the amount, and quality, of work completed.
Alternatively, investing in new technologies to streamline the business can help staff get tasks done easier and quicker. With an efficient workflow and a better marketing plan, you can reduce costs, increase profits and improve your bottom line.
9. Improve your inventory
Are there goods you have in stock that aren’t selling at the same pace as your other products? Those items mean money is tied up within the business. Buying more of these products won’t improve cash flow, so get rid of them – even if you have to do it for a discount. You may like the product but if the demand isn’t there, it may hurt your business.
10. Lease your equipment and supplies
Equipment leasing is a great financial solution for any business. By renting assets under a financial lease, you can forecast more easily with regular monthly payments. Other finance and leasing options can provide other benefits – for example, refinancing or sale and leaseback can help your cash flow by freeing up working capital while also allowing you to continue using the equipment critical to your business. Whether you need a fleet of vehicles, IT or telecoms equipment, leasing these assets will save you money in the long run. With a finance plan in place, rentals can be paid monthly or quarterly so you can put money into your business where it matters most. This is especially beneficial for small businesses and startups.