How to improve cash flow for small businesses

Cash flow can be something that keeps you awake at night – we’ve all been there. However, with a few tips it doesn’t need to be crippling.

Trading terms

Are you offering too long for customers to pay you? It may be nice to offer 30 day terms to your customers; it sometimes just isn’t practical for small business.

Your customer may expect a quick result from you, so shouldn’t you expect prompt payment?

I recommend thinking about making your terms of trade seven days.

This will ensure that you have a steady inflow of cash which makes your expenses easier to manage.

Debt control

There are statistics to show that many small businesses fail due to poor cash flow.

One of the areas that lets them down the most is customers not paying their invoices on time, so it’s important to get on the front foot and follow up on late payments.

I will generally suggest a couple of days’ grace and then a simple reminder to a customer is required.

Leave it another couple of days and then follow up again.

Direct debit and merchant facilities

If you’re in a service industry, consider putting all your recurring clients on a direct debit arrangement.

There are many excellent facilities that can help you with this that connect directly to your accounting software.

By automating this side of your business, not only are you freeing up valuable admin time but you are ensuring your cash flow is consistent and guaranteed.

You may also consider having a merchant option so you can take credit or debit card payments out on the road when you are seeing your customers (great for tradies).

Invoicing processes

Are you the kind of business owner who’s so busy running your business that you’re too overwhelmed or too tired to do your invoicing when you get home?

The slower you are at getting your invoicing out to your customers, the slower they will be in paying you.

If this is a problem for you, consider outsourcing this task to a professional bookkeeper who can make sure this is all done quickly for you and then follow it up for you the following week if the customer hasn’t paid.

Overheads and working smarter

It’s an invaluable exercise to have a very good look at the costs in your business. Are you able to reduce some overheads? Even by a little?

Consider things outside of the box. Here’s an example:

John is an electrician. He has a fleet of four vans on the road. John is frustrated because every time one of the vans needs to be serviced, he has to have a staff member take it to the Service Centre.

Then they have to either wait around or be driven back to the office by another staff member – it’s a double productivity hit.

Instead, what if John got a mobile mechanic to come to his office to service the van?

Add-on services

Is there anything that you can offer your existing clients that will increase your income? Can you offer any quick add-on services?

This will become residual income that you can achieve without putting in much extra effort.

For example, in our office we have a subscription to a Human Resource company. We pay for the subscription at a reduced rate due to our relationship with our industry association.

Our clients can then have access to this service through us. We charge our clients a nominal annual fee for the ability to have this.

Our clients would not afford having their own access to this information or subscription but through us they can get exceptional value and help, whilst we can increase cash flow by being able to charge for it.

Stock levels

Are you carrying too much stock?

Stock is not only an expense that is incurred before a sale takes place but it is also something that takes us space and requires insurance.

Take regular stock takes.

Make sure you don’t have too much spoilage, and be aware of lines of stock that are taking too long to move.

Do you even need to have stock?

For example, one of our clients sells her stock on line. She takes the orders for the items before she even goes out and purchases it!

Her online store has the photos of everything she sells and she has arrangements with her suppliers that she can order regularly. Is this something you can do?

Cash flow can be tough, but think about all the little things you might be able to make changes to that will help.

The key is to know your numbers. Be familiar with how they work – seek professional advice if you are unsure.

Learn how to make your cash really flow

Cash flow can make or break a small business. See our handy tips here.

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