21 Strategies for Improving Cash Flow for Your Small Business

Cash flow is regularly cited as one of the biggest stressors for entrepreneurs and small business owners. Cash management is critical to the health of any business. Even if a business is profitable—without cash, it can go under in a matter of weeks. 

There are many ways to increase cash levels. Our team compiled this guide of our favorite strategies for improving cash flow management across your business.

More cash means you can grow your business, grow your team, add inventory and add locations. More cash also means you have more power - to make strategic moves, to negotiate better, to be proactive and not reactive. More cash actually will increase your profitability. And best of all, more cash reduces your stress.

When it comes to managing cash flow, there are a few primary strategies for improving cash management over the long-term:

• Collect Sooner
• Pay Later
• Manage Financing
• Increase Prices and Reduce Costs
• Make Cash Management a Company-Wide Initiative

We hope you find this guide useful as you grow your business. 

Strategy One: Collect Sooner

1. Reexamine Contract Terms. Businesses should consistently review their customer contracts to ensure they reflect current business conditions. Often companies can invoice sooner--or increase the percentage of invoicing done earlier to better match costs incurred or the timing of work performed. Another option is to simply invoice more often; for example invoice semimonthly versus monthly. Consider including the option to charge interest and penalties - even if you do not aggressively enforce these, you will encourage more timely payment. 
2. Require Upfront Retainers or Deposits. Ask for (or require) deposits to ensure that you have money to purchase materials and pay your staff for projects. In many cases, it is reasonable to require full payment to be received before you release the final product. 
3. Conduct Credit Checks on Customers. Do credit checks and background checks on your customers. You should consider tighter terms or even higher prices for those with lesser credit or without a strong credit history. 
4. Invoice Customers Faster. Many companies do not invoice promptly, even if their contract terms allow. There are many reasons - they’re too busy, following an old process, or there’s been an internal miscommunication. Often an outside review of a company’s invoicing process results in a significant reduction in outstanding receivables, simply through an improved invoicing process. 
5. Prepare Accurate Invoices. Send out accurate invoices every time, and you will see an improvement in cash flow. Don’t miss out on cash because you made a mistake on invoicing 
6. Expedite deposits. Expediting deposits is now much easier with the accessibility of remote check scanners. Companies have the ability to scan checks directly into their account, without having to go to the bank. ACH payments are another good option.
7. Collections Process. Evaluate your collections process. Is there a defined process? Do you reach out to customers before the due date or only once accounts are delinquent? Who handles this in your company? There are best practices in this area that can be adapted to almost all companies. Relationships matter. Sometimes getting paid is as simple as asking. 

Strategy Two: Pay Later

8. Internal Accounts Payable Process. Do you have a detailed process for paying vendors? Is it based on payment terms and your cash available? Or is it simply which invoices have been received that week or which vendor calls most frequently? Do you consider the strategic importance of vendors when deciding who to pay? Similar to invoicing, there are best practices that can be adapted to a formal AP process for most companies.

9. Utilize Vendor Payment Terms. Don’t be reactive. If a payment is due in 30 days, you don't need to pay the invoice immediately. If you do have cash on hand, consider using vendor terms (and paying at the latest date) as an opportunity to negotiate early pay discounts (and thus increase profitability).

10. Use Electronic Payments. Make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible.

Strategy Three: Manage Refinancing

11. Re-Finance Debt. Consider requesting a new lending proposal from your bank (and others) from time to time. Your business risk may have decreased and/or your borrowing profile may have improved with time. Another option is to replace your current line of credit (required to be paid down each year) with a term loan (often for 3-5 years). This type of re- financing may reduce your monthly payments significantly, even if the overall borrowing remains the same. Often there is not a pre-payment penalty which increases the attractiveness of such an option. There are plenty of other options to consider depending on your specific scenario. 

12. Use Alternative Financing. As bank regulations increase and lending for small businesses becomes more onerous, alternative financing is becoming a more viable option. There are different options for alternative financing (including plenty of bad ones), but for many smaller business, traditional bank lending is not a viable option. In this instance, alternative financing - with a good advisor at your side - may be the right call to get your business from point A to B.

13. Factor Receivables. Factoring receivables can help cash inflows because a third party factoring company will front cash as a short term loan. The factoring company will take a cut of the pledged receivables, but cash will be available for immediate use. Factoring is an expensive form of financing, but can be invaluable for certain companies that could not otherwise receive financing for larger inventory purchases or similar cash flow needs. 

Strategy Four: Increase Prices and Reduce Costs

14. Increase Pricing. A lot of business owners don’t do this. But it's OK to experiment with pricing to find the right number. Are your prices in line with the specific value you are providing? Have your costs gone up? When was the last time you increased prices? Make sure that you are passing these onto your customers when appropriate. Reviewing pricing on a regular basis is a key to any successful business.

15. Use Change Orders. For those companies that operate on longer-term contracts, it is inevitable that things change during the duration of the agreement. Most contracts allow for change orders or add-ons based on such changes. However, many companies do not track this well or are fearful of having tough conversations. The best and most profitable companies track and communicate these meticulously. 

16. Ask for Discounts. Asking for discounts from vendors is one of the easiest ways to increase overall profitability and boost longer-term cash flow. Early pay, for buying in bulk, signing up for long term contracts, just because you ask--these are all good strategies for getting discounts. If you have the flexibility to do this, it is one of the most impactful decisions a company can make. 

17. Pool Resources with Other Companies. Find other companies willing to work together in order to negotiate lower prices with suppliers. Volume purchases or referring companies tend to get favorable discounts. 

Strategy Five: Make Cash Flow Management a Company-Wide Initiative

18. Forecast Cash Flow. Many small businesses fail due to lack of planning and control over cash resources. Small and mid-sized businesses aren’t prepared for all the costs associated with growing quickly. More sales could mean more employees and more inventory. That's money going out upfront. But when will it come back? A rolling 12-month forecast is the best practice for most companies. Those in a tighter cash position will need to manage cash flow via a more detailed 13 week cash flow plan. If you start mapping things out week by week, you'll see when to expect surges in expenses ahead of your big sales season and when several payments might come due all at once.

19. Segment Suppliers, Customers and Inventory. This will give you a much better analysis of where you stand from a cash flow perspective. You might miss things if you try to tackle your cash flow as a whole. You're better off segmenting suppliers, customers and inventory. Do you have too much cash tied up in products that sell only sporadically? Would that money be better off used in your "bread and butter" items that turn over more quickly? Which suppliers are regular versus one-off buys? How can you use this to your advantage when negotiating better terms? Who are your key customers? Just because they generate revenue doesn't necessarily mean they are profitable.

20. Enlist the Help of Experts. Managing cash flow is not easy. It requires meticulous diligence and, sometimes, stone-faced stoicism. Bringing in an external accounting firm that specializes in small businesses means you have more time to focus on running your business. And you also get the benefit of the expertise from years of learning the tips and tricks and best practices that make the most sense for your company at the right time. Somewhat counter-intuitively, often when cash flow gets tight, enlisting an outside expert will generate much more cash than it will cost. 

21. Get your employees involved. If improving cash flow is a priority, make sure all of your employees understand how they can help. Often those on the front lines are only too happy to show you where the waste is and are willing to share their ideas of how to get the company to the next level. Set targets and make it a game or friendly competition with prizes - you’ll be amazed with the results. 

Click here to download the full PDF guide.