Solve Business Cash Flow Problems

ABC FinanceBusiness KnowledgeSolve Business Cash Flow Problems

10 Simple Ways To Solve Business Cash Flow Problems

Cash flow is key for any business and is the reason that most businesses fail. With strong cash flow, any business can survive long enough to ride out a problem and fix it.

On the other hand, poor cash flow will slowly starve the business, lead to late payments, unsettled staff and unhappy stakeholders.

Let’s break down 10 simple ways to solve cash flow problems.

1. Invoice Promptly and Follow Up

Invoice immediately after you deliver your product and service and don’t be afraid to follow up early and regularly.

If you’re working with an invoice finance provider, especially invoice factoring, they may assist you in this area. If you don’t and are struggling, consider going down this route.

Where there’s concern about late payments, consider adding bad debt protection to offer you a safety net should one of your customers fail.

2. Offer Multiple Payment Methods

Make it easy for your customers to pay and they’ll be more likely to do so. Offering multiple payment methods does exactly this and can speed up your cash flow cycle as a result.

Offer bank transfer, payment platforms that accept card payments, mobile payment platforms. Whatever it takes to make sure you get paid promptly.

3. Implement Early Payment Discounts

Offering discounts to customers who pay their invoices early will encourage your customers who are sat on a cash balance to do exactly that.

Providing a discount structure incentivises your customers to pay early and can improve cash flow. By securing faster payments, you’ll also save a lot of time dealing with credit control and chasing outstanding balances, which means more time to focus on what you’re good at.

Your better customers will pay early, leaving you with the time and energy needed to manage any of your more stubborn payers.

4. Extend Payables Strategically

You can manage your cash flow from both sides – getting your customers to pay quicker, and paying your suppliers slower (with their consent).

Look to extend your payment terms with suppliers to allow you to manage your cash flow effectively by keeping hold of your cash for longer.

It’s important that you maintain good relationships with your suppliers, so give them any information that is likely to help.

For example, if your cash flow is impacted by the fact that you’re growing quickly, tell them that and explain that you plan to increase orders in the future. This turns the conversation around from you being a potential problem customer who wants to pay slower to you becoming a potential future top client as your business grows.

Read more – How To Manage Your Business Finances When Growing Rapidly or Business Turnaround: A Simple Guide With Steps.

5. Manage Stock Levels Efficiently

Holding excess stock is terrible for your cash flow, so managing this area effectively can improve things dramatically.

If appropriate, consider transitioning across to a just in time (JIT) delivery method to ensure you carry minimal stock and keep your cash flow positive.

6. Increase Sales

Of course, this is sometimes easier said than done, but increasing sales, as long as your margins are workable will improve your cash flow.

If you’re operating on delayed payment terms then consider debt factoring to bolster cash flow to support the new growth.

Marketing promotions, expanding product lines or entering new markets can all increase your sales and provide you will crucial cash for your business.

Of course, when choosing new products or markets, the importance of targeting efforts to high-margin products or services cannot be understated.

7. Reduce Overheads

Cutting costs is a simple and often controllable way to solve cash flow problems. Go through your expenditure and highlight areas for review.

For example, if you have a commercial mortgage or business loan, could you review your product and get a better deal?

Extending the term could reduce your outgoings, providing relief when your business cash flow is very tight.

Set this as a regular task and review your financial overheads often. It’s important that you know what options are out there to make sure you get the best deal.

While it may seem like a small thing, switching to a new business bank account provider can drastically reduce fees and save significant amounts of money.

Don’t overlook anything, review everything and your savings will add up, easing pressure on your cash flow.

8. Lease Instead of Buy

Choosing equipment leasing instead of buying an item can massively improve your cash flow by allowing you to hold on to cash balances.

This allows you to manage your money a lot better, with a smooth set of outgoings, rather than having large chunks of cash regularly going out.

Many businesses choose to purchase large pieces of equipment through asset finance rather than buying for exactly this reason.

In most cases, the amount of money you need to put down to purchase an item using asset based lending (ABL) will be minimal.

If you already own assets, you could look to release funds from them using asset refinancing to put much needed money back into your current account.

9. Review Regular Outgoings

So we’ve already looked at your finance costs, now lets take a look at your other regular outgoings. There’s plenty of savings to be made that can all impact your cash position.

Reviewing your business insurance costs including business building insurance, business life insurance and professional indemnity insurance can lead to big savings.

Other expenses can also result in massively reduced monthly costs. Undertake a business energy comparison and review your business connectivity solutions including your business broadband and VoIP provider.

10. Improve Profit Margins

Sometimes this is easier said than done, but look to increase your profit margins where you can.

Reducing expenses is always a winning option if it can be done without reducing quality – so review your processes and suppliers regularly.

Consider the impact of increasing prices, if a small increase can be achieved without losing customers, do it. If a larger increase would cost you some customers but result in the same profit from less work, you should consider this option.

This isn’t always easy to calculate, but cost it up properly using the data you have available and try to make an informed decision.

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