Small Business Saturday Blog

5 Ways To Improve Cashflow for Small Businesses

Friday, February 20 at 13:56Finance

As a small business owner you understand that healthy cashflow is essential. Yet, all businesses, no matter how big, will face times in their life cycle when they are squeezed for cash. The question is how best to prevent these situations and keep your business on track to achieve its objectives.

Cashflow management is a skill and one that any business owner can pick up through practice.

We’ve compiled these 5 easy tips to help all small business owners improve their cashflow situation – read on.

      1. Be clear on when payments are leaving your account and when you expect money to be entering your account

Know when you have to cover crucial costs such as staff wages, quarterly rents and tax obligations. Ensure you organise a schedule that works for you i.e. when you expect to have cash in your account. It may sound simple but the reality is often far from it.

A great method to ease payment pressure is to negotiate a fair amount of time to pay your suppliers, such as 7 days or 30 days. Another way is to arrange credit terms that allow for staged payments; it is aways worthwhile to ask what’s possible in business.

2. Get on top of your finances and use all of your resources

Financial control is essential to manage your cashflow. Where can you afford to cut costs? What service is not having the return on investment you expected? If you’re a retailer, for example, and you are purchasing tonnes of new stock – have you used all of your current stock? Don’t forget the option to upcycle your inventory so you are making the best use of all your assets. Reducing unncessary expenditure will improve your cashflow position.

3. Be proactive with customers who delay payments

This is true particularly with those customers who make up a large portion of your revenue. While they may place the largest orders, if they pay late it will become a big problem.  Remember, the bigger the customer, the bigger the potential impact on your cashflow from delayed payments.

Ultimately, customers need to stick to their set terms, and you should be quick to spot customer trends that suggest they may be having trouble paying or are constantly delaying. You can buy credit control services for small businesses which can help identify these trends, allowing you to keep firmly on top of any issues.

4. Finance the gap in between your payments

Raising finance from your invoices is a popular solution to keep your business cash rich. Put simply, you use your unpaid invoices to get cash from banks or invoice financiers for a fee. The cash advanced or borrowed from your invoices is an agreed percentage of the invoice value. This means you don’t get the full amount upfront but you do get a healthy chunk immediately. When the customer pays the invoice in full, the payment will go via your business to the invoice financier. To assess if it’s possible for your business, you should always speak to a finance professional about the terms and costs available from the different providers, and what your current margins would allow you to afford. If it’s possible, it is a viable option used by many businesses to improve their cashflow.

5. Apply for overdrafts or rolling facilities

These finance products, from banks and non-banks, are designed so that you can dip into your account and cover payments as and when you need. You pay a small fee to have access to the funds and then you pay for the funds that you actually use.

They provide great peace of mind from always having funds in your account for unforeseen payments.  

If your business cannot get access to a traditional overdraft from your bank, don’t be disheartened. New alternative finance providers have introduced rolling credit facilities which act in a similar vein to overdafts. They come at a greater cost with regards to the rates you pay for drawndown funds, but then there is the added benefit of speed and flexibility; you receive the funds straight into your account much quicker than the lengthy process associated with bank overdrafts.

Following these simple tips can be an effective way to improve your cashflow position in the business. We hope you find them useful.

This article was written by Satnaam Dusanj, Account Manager at Funding Options Limited

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