10 Best tips on how to improve cash flow in a business

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Cash flow refers to the cash coming in and moving out of your business. A positive cash flow leaves you with surplus cash to expand your business, but a negative cash flow can put you in a tight spot, making it difficult to cover expenses.

So, how to improve cash flow in a business? Let’s find out.

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10 ways on how to improve cash flow

Though cash flow looks different for each company based on their industry, stage of business, and cash conversion cycle, the company will face cash flow issues if cash outflow exceeds cash inflow.

While growing the business rapidly and reaching new markets is the goal of every business, you'll eventually face liquidity issues if you don't have sufficient working capital left to cover operational expenses. Remember, your business can grow sustainably only if it has access to finance.

If you're wondering how to improve cash flow from operations, don't look any further. Listed below are the top 10 ways to improve cash flow in 2023.

1. Send invoices on time

Since invoice payments are a major avenue for businesses to receive cash, sending them on time is vital. It doesn't matter if you use spreadsheets or cloud-based solutions. Sending invoices to your clients promptly should be a top priority.

Ensure you maintain clear records of when an invoice is sent, if the payment is received, and which clients and customers the invoice was sent to and who are pending.

2. Remind your clients and customers to clear your invoices

According to recent findings, a third of small firms in the UK are adversely impacted by poor payment practices. The late payment crisis can cripple your cash flow and affect your business’s growth and sustainability.

So whenever an invoice is overdue, send your clients a payment reminder via email to clear your invoice soon. You can also call and ask them to clear your pending invoices.

Moreover, to ensure that your clients pay you on time, you can entice them with discounts and offers. You can even levy a late payment fee to discourage late payments.

Usually, these strategies should do the trick, but you can seek legal counsel if your clients are unresponsive. But if you need cash instantly, you can try invoice factoring.

3. Take advantage of cash flow forecasting

You must know what your cash projections look like to improve your cash flow. Forecast your cash flow for at least three months and list your expected income and expenditure for the planned period to calculate net cash flow.

If the net cash flow figure is positive, you’re on the right path. But if the figure is negative, you’ll have trouble paying your bills. An accurate forecast will help you monitor your cash flows effectively.

👉 Watch our video on cash flow forecasting

4. Maintain a leasing before buying policy

As a startup, you might have limited cash and spending it on buying assets and real estate will consume your savings. So until you’ve sufficient cash surplus, lease the assets before buying them. This will allow you to use the assets while paying small amounts for them so that you’ve cash at hand to cover daily expenses.

5. Try getting advance payments

It might not always be possible to receive advance payments. But even if you can get your clients to cough up a part of the invoice in advance, it’ll give you some much-needed liquidity so you can focus on executing the project.

Moreover, conduct credit checks for consumers to understand if you’ll be receiving payments late. This will hurt your cash flow, so charge a high interest rate if you conduct business with such customers.

6. Rethink operational expenses

One of the best ways to improve your cash flow is to minimise operational expenses. Identify your current expenditures and decide if they’re adding value to the business. If not, cut them out.

If they do add value, try finding cheaper alternatives or more efficient equipment. Your focus shouldn’t just be on cutting costs. Streamlining your internal processes will help you save time so you can get more done without shelling out extra money.

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7. Manage your inventory

Effective inventory management is crucial to improving your cash flow. Conduct an inventory check and identify products that aren’t doing well. Get rid of them even if you’ve to sell them at a discount to do away with warehouse, inventory manager, and related utility bills.

The same goes for your raw materials. If you use some material scarcely during the production stage, there’s no point in hoarding it, even if you can get it at discount, and increasing your inventory costs.

8. Maintain cordial relationships with your suppliers

You can save a significant amount of cash by regularly communicating with your suppliers. This will allow you to negotiate better payment terms with them. Don’t shy away from asking for bulk rates and compare their offer against other suppliers. You can also offer them early payments to get discounts.

9. Open a high-interest business savings account

By opening a high-interest business savings account, you can earn some extra cash. Such accounts offer higher interest rates than regular savings accounts, improving your cash flow.

10. Experiment with your selling price

The best way to generate more cash inflow is to increase your sales numbers. You can experiment with your selling price—marking it up or down—to either see an increase in sales or your profit margin on each unit sold.

Why is it difficult to improve cash flow?

The biggest reason behind cash flow problems is insufficient turnover. Late and overdue payments will increase your sales, but you won’t realise any actual cash for a couple of months. You may even have to write off some debtors as bad debts.

If you're expanding at a rapid pace and have a low sales margin, it’ll be difficult to improve your cash flow. Another crucial reason could be poor inventory management.

Related article: The best cash flow forecasting software in 2023

How do you fix low cash flow?

To bid your cash flow problems goodbye, you can follow the tips listed below:

  • Set up a line of credit: This will give you access to a preset amount of money when you need it. The best part is that you need to repay only the sum you use. Interest is also charged on the outstanding sum.
  • Manage business expenses: Negotiate terms and contracts with your vendors to get the best deals and find non-essential areas where you can afford to cut back on expenses.
  • Promote your product and services: Take advantage of opportunities and proactively upsell and cross-sell to improve your financial position.
  • Keep an eye on company growth: Though business growth is exciting, unwarranted growth can increase your current expenses and create cash flow shortages.
  • Prepare a cash flow forecast: A cash flow forecast will give you an estimate of your future cash flow, giving you enough time to set up lines of credit and optimise your spending.

Do you need to improve your positive cash flow?

Most companies focus on improving their cash flow or turning their negative cash flow into positive. But they forget that improving positive cash flow is equally important. If your business experiences positive cash flow year after year, it would give you the option to expand your business, pay off the debts, invest in lucrative opportunities, set up emergency funds, and pay dividends to shareholders.

What are three causes of poor cash flow?

The three key causes of poor cash flow are as follows:

  • Receiving late payments from customers: Most businesses receive late payments from their customers, which reduces their liquidity and adversely impacts daily operations.
  • No financial planning: Companies often face cash flow problems due to a lack of financial planning, making it difficult for them to forecast their cash flow shortages for the upcoming period.
  • Lack of emergency funds: Most businesses don’t maintain a cash buffer to survive days of low cash inflow, affecting their inventory and operations.

How to improve cash flow management?

Businesses can improve their cash flow management by proactively identifying and analysing their cash inflow and outflow on a regular basis.

Improving Cash flow: Agicap solutions

Agicap allows you to unify all your cash flow transactions, connecting your bank accounts and business software, to reduce manual labour and eliminate cash flow errors. This solution makes it easier to monitor your cash flow in real-time, analyse your cash flow, and prepare an accurate cash flow forecast.

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