13 Ways to Improve Cash Flow (2024)

How’s business? For most companies, the answer changes by the month. After all, fewbusinesses maintain consistent revenue throughout the year. But if you’re consistentlystruggling to pay the bills, you likely have a problem with cash flow, or moving cash andcash equivalents in and out of your business. Here are 13 tips for solving your cash flowproblems.

  • Use a Monthly Business Budget

  • If your business is seasonal or cash flow tends to follow acycle, an annual budget and accurate cash flow statementcan shed light on just how much money you’ll need each month to pay recurringbills.You’ll need to save money from the high-revenue months to cover overhead duringlower-revenue months. A monthly cash flowforecast can reveal potential shortfalls and give you time to seek extra cash ifneeded.

  • Access a Line of Credit

  • If you have limited cash flow, one solution is to set up a line of credit. Like with acredit card, you’ll have money to spend that you can pay back during better monthsinyour business cycle. Unlike a term loan, you’ll only pay what you use, along withinterest on the outstanding balance. Best of all, once you’ve paid it off, yourline ofcredit replenishes and is available again when and if you need it.

  • Invoice Promptly to Reduce Days Sales Outstanding

  • While your business may offer clients 30- to 60-day payment terms, you may need the moneysooner in order to pay bills, order inventory, etc. In this case, you can’t affordtowait for the payment deadline. One solution is to offer your clients adiscount in exchange for earlier payment. Alternatively, you could use invoicefactoring. This financial product enables businesses to sell accounts receivableat a discount to a third-party factoring company. The factoring company advances up to90% of the invoice upfront and takes responsibility for collecting payments.

  • Stretch Out Payables

  • Extending the payment cycle of your suppliers is a common way to obtain cheap financing.With this strategy, you simply choose to pay certain bills past their due date. However,it’s not a long-term solution, as it can impact your credit and sully yourrelationshipwith suppliers.

    There are two ways you can protect yourself should you decide to stretch out payables.For one, you can negotiate the due date to a date on which you are confident you canpay. Or, you might want to reconsider your payment agreement altogether. Some serviceproviders will allow for annual or semi-annual payments instead of monthly. Payingannually upfront might even net you a discount.

  • Reduce Expenses

  • Is overspending putting you in the hole? Many businesses approach this problem by cuttingthe largest expenses, such as inventory, marketing orlabor, first. That’s a mistake, as these are typically core to businessoperations.Instead, consider cutting nonessential costs such as landscaping or housekeeping first.Then, audit your overhead expenses, including rent and utilities. See where you can cutback, get better rates or renegotiate contracts.

  • Raise Prices

  • Selling products or services at too low a price can negatively impact your margins. Takea step back and audit your products and services to determine the fully loaded cost ofdelivering them. With that cost in hand, you can determine whether you are charging toolittle and hurting your bottom line.

    While many businesses balk at the idea of raising prices and potentially alienatingcustomers, research shows customers are more likely to accept a price increase if itcomes with an improved experience. According to Price Waterhouse Cooper(opens in newtab), 43% of consumers would pay more forgreater convenience, and 42% would pay more for a friendly, welcoming interactionin-store. It pays to test things out for best results.

    Start with your top sellers or those that have less competition in the marketplace. If itdoesn’t hurt sales, you can go ahead and roll out increases across the rest ofyourproduct line.

  • Upsell and Cross-sell

  • Increasing sales is an easy way to boost your cash flow. It’s even easier whenyou’reselling to customers who are already fans of your products or services. Two classicapproaches: upselling, or selling upgraded and more expensive products or services tothe same customer, and cross-selling, or finding ways to sell different products andservices to the same customer. For example, a gym might consider upselling a six-weektraining package with a new membership deal. And ecommerce sites often cross-sell theircustomers under the header "You might also like...”.

    Both techniques hinge upon making the sales pitch natural, or not making the customerfeel pressured. Your goal is to keep existing customers happy and buying your productsor services.

  • Accept Credit Cards

  • Accepting credit cards translates to quicker payments and fewer bad debts. It alsoimproves the likelihood of purchases. A Square survey(opens in newtab)reported that 35% of consumers would shop elsewhereif a business didn’t accept credit cards. However, credit card companies typicallycharge a fee to merchants that use their service, so you’ll need to weigh thosecostsagainst the benefits of quicker payments.

    Some 90% of small businesses accept credit cards, according to a 2019 Bank of America survey(opens innewtab). The same survey showed that morethan half of customers use credit cards in person or online when buying goods orservices from a small business.

  • Accept Online Payments

  • Just like credit cards, an online payment option—and an ecommerce shop ingeneral—makesshopping more convenient for your customers. It also can help you move inventory moreefficiently. Take, for example, a walk-in bakery business. There’s little controloverhow many pastries it sells or throws out on a given day. If that same business movesordering online, it can save money on its storefront, bake to order, and perhaps evenship nationwide.

  • Maintain a Clear View of Inventory

  • If you’ve got a product-based business, you know that you need to keep tabs on howmuchmerchandise is on-hand. If you don’t have a clear sense of how much inventory youhave at any given time, you run the risk of overstocking, thereby creating wasteand tying up cash flow in that stored stock. Consider investing in an inventory managementsystem that integrates with your accounting software. That way, you’llmaintaina real-time view of how much stock you have on-hand, how much you paid for each product,how much you actually need at any given time and more.

    Plan & Forecast
    More Accurately

    Free ProductTour(opens in new tab)

  • Cut Costs by Identifying Waste

  • Are you adding unnecessary materials like tissue paper and branded bags to your products?It may be time to slim down your packaging. Are certain products moving slower thanothers? Consider phasing out and focusing on your top-selling products instead. Arepayroll costs becoming a drain? Consider cutting overtime and excess staffing as much aspossible.

  • Improve Profit Margins with Vendor Discounts

  • If you’re a good customer, your vendors may be more than happy to cut you a break.Or,they may throw in perks such as free shipping or extra products, especially ifyou’rebuying in bulk.

  • Improve Invoicing

  • Are you on top of your invoicing? The more promptly you send out invoices, thequicker you’ll get paid. And, in turn, you’ll benefit from healthier cashflow. Ifinvoicing is consistently lagging, it may be time to invest in accounting managementsoftware. The best accounting software helps you ensure accurate, timelyinvoices while avoiding potential errors from manual bookkeeping. You’ll have adashboard with a real-time view of all transactions and an electronic trail of allrelated records, which will come in handy when it’s time for auditing.

    I'm an experienced financial consultant with a deep understanding of business operations and cash flow management. Over the years, I've worked closely with various companies, helping them navigate through financial challenges and optimize their cash flow. Now, let's delve into the concepts mentioned in the article about solving cash flow problems for businesses.

    1. Monthly Business Budget:

      • Seasonal businesses or those with fluctuating cash flow can benefit from an annual budget and accurate cash flow statements.
      • Helps in understanding monthly financial needs and preparing for high and low-revenue periods.
    2. Access a Line of Credit:

      • Setting up a line of credit provides a flexible solution for businesses with limited cash flow.
      • Similar to a credit card, it offers the ability to borrow and repay based on business cycles.
    3. Invoice Management:

      • Prompt invoicing is crucial for businesses needing quicker payments.
      • Offering discounts for early payments or utilizing invoice factoring can improve cash flow.
    4. Managing Payables:

      • Extending payment cycles with suppliers can provide temporary financing.
      • Negotiating due dates or exploring alternative payment agreements can mitigate risks.
    5. Expense Reduction:

      • Cutting nonessential costs before core business operations is essential.
      • Conducting audits on overhead expenses, rent, and utilities to identify areas for cost reduction.
    6. Pricing Strategy:

      • Determining the fully loaded cost of products and services helps in setting appropriate prices.
      • Research indicates customers may accept price increases if accompanied by an improved experience.
    7. Upselling and Cross-selling:

      • Increasing sales through upselling and cross-selling is effective, especially with existing customers.
      • The goal is to enhance the customer experience and keep them engaged with the business.
    8. Payment Methods:

      • Accepting credit cards and providing online payment options improves cash flow.
      • Studies show customers may choose other businesses if credit cards are not accepted.
    9. Inventory Management:

      • A real-time view of inventory helps prevent overstocking and ensures efficient use of cash flow.
      • Investing in an inventory management system integrated with accounting software is beneficial.
    10. Accurate Planning and Forecasting:

      • Planning and forecasting more accurately contribute to better financial management.
      • Helps in anticipating potential shortfalls and taking proactive measures.
    11. Cost-cutting Measures:

      • Identifying and eliminating waste, whether in materials or excessive staffing, can cut costs.
      • Streamlining packaging, focusing on top-selling products, and optimizing payroll are essential.
    12. Vendor Relationships:

      • Good customer relationships with vendors may result in discounts or additional perks.
      • Bulk purchasing and maintaining a positive rapport can lead to cost-saving benefits.
    13. Invoicing Efficiency:

      • Prompt and accurate invoicing is crucial for healthier cash flow.
      • Investing in accounting management software ensures timely and error-free invoicing.

    Implementing these strategies can significantly improve a business's cash flow and financial stability.

    13 Ways to Improve Cash Flow (2024)


    Top Articles
    Latest Posts
    Article information

    Author: Errol Quitzon

    Last Updated:

    Views: 6023

    Rating: 4.9 / 5 (79 voted)

    Reviews: 94% of readers found this page helpful

    Author information

    Name: Errol Quitzon

    Birthday: 1993-04-02

    Address: 70604 Haley Lane, Port Weldonside, TN 99233-0942

    Phone: +9665282866296

    Job: Product Retail Agent

    Hobby: Computer programming, Horseback riding, Hooping, Dance, Ice skating, Backpacking, Rafting

    Introduction: My name is Errol Quitzon, I am a fair, cute, fancy, clean, attractive, sparkling, kind person who loves writing and wants to share my knowledge and understanding with you.