When the incoming cash flow is not enough to meet the outgoing cash flow needs of the business, there is poor cash flow. It slows down daily operations, future investments, and your business’s overall growth objectives.
Cash flow gaps happen when your business expenses exceed earnings. It may be caused by stagnant inventory, dipping sales, or dismal debt collection. Cash shortages also arise due to poor cash flow forecasting and management. However, if you are confident that your business has a positive cash flow, it must have been receiving profits faster, meeting targets in a shorter time frame, and spending less on operating expenses. Apply these 12 proven tips to further improve cash flow in your small business.
#1 – Improve Invoicing Process
Improving the invoicing process can significantly impact business cash flow. Here are several ways in which enhancing the process improves cash flow:
Faster Payments
An efficient invoicing process means faster payments from customers. Clear, accurate, and promptly sent invoices reduce the likelihood of payment disputes or delays. When customers receive invoices in a timely manner and understand the payment terms clearly, Customers are more likely to make payments promptly when they receive invoices on time and clearly understand the payment terms.
Avoid Confusion
Improving the invoicing process minimises errors and discrepancies in invoices. Accurate invoices with correct information and clear payment terms reduce the chances of payment delays due to confusion or disputes. Resolving disputes and addressing payment delays can be time-consuming and can hinder cash flow. You can avoid such issues and maintain a steady cash flow if you streamline the process.
Improved Cash Flow Visibility
A well-organised invoicing process provides better visibility into the status of invoices and outstanding payments. As a business owner or manager, you can forecast and manage cash flow more effectively by monitoring accounts receivable closely and tracking invoice payment statuses. This visibility enables proactive cash flow management and allows businesses to plan for any potential shortfalls or surpluses.
Enhanced Financial Record Keeping
A streamlined invoicing process contributes to more organised financial record keeping. If the records are accurate and well-maintained, businesses like yours can have a bird’s eye view of their financial transactions and history. This documentation is vital for financial reporting, audits, analysis, and future funding opportunities. Lenders and investors usually require well-documented financial records to assess the financial health and stability of a business.
#2 – Negotiate Payment Terms with Vendors and Suppliers
Negotiating better payment terms simply means that you can arrange to pay for things at a later time or in smaller installments. You can hold onto more money within your business, which helps improve your ability to pay bills and avoid running out of money or having to borrow loans. Basically, it allows you to manage your cash flow more effectively and avoid financial difficulties.
Here are some more ways in which negotiating payment terms can help improve business cash flow:
- You can extend the time you have to pay them.
- It helps you maintain a healthier working capital position.
- It allows you to align your cash inflows and outflows more effectively.
- It enhances your financial stability by reducing the risk of cash flow disruptions.
- It helps build a positive relationship with them, as they may be more willing to offer favourable terms, discounts, or better pricing.
#3 – Monitor and Reduce Expenses
Monitoring and reducing expenses has a direct impact on the amount of money available to cover your expenses and meet financial obligations. You gain a clear understanding of where your money goes and identify areas where you can cut back or eliminate unnecessary costs. As a result, you can allocate your resources more efficiently and reduce wasteful spending.
You can free up more cash that can be used to cover essential costs, invest in growth opportunities, or build up a financial cushion for unexpected circumstances. Essentially, monitoring and reducing expenses helps ensure your business is operating within its means and maximising its financial resources.
#4 – Increase Prices
When prices are increased, the revenue generated from each sale increases as well, meaning, for the same level of sales volume, the business will be able to generate more money. With higher revenue, the company can cover its expenses more effectively, i.e. operational costs, wages, and other overheads. As such, the business becomes more financially stable and has a better chance of meeting its financial obligations.
Increasing prices also leads to higher profit margins. Profit margin is the difference between the selling price of a product or service and its cost. By raising prices, you can increase its profit margin on every sale, allowing you to earn more profit from each unit sold. The additional profit generated can be reinvested in the business for growth and expansion.
#5 – Implement Cash Flow Forecasting
Cash flow forecasting involves estimating your future inflows and outflows of cash based on past performance and market trends. Doing so helps you understand your financial situation better and identify potential challenges or opportunities. The following are the benefits of forecasting your cash flow:
- anticipate periods when your business might experience cash shortages or surpluses
- explore options such as adjusting your expenses, seeking additional funding, or implementing strategies to increase sales or expedite customer payments
- greater visibility and control over your financial operations
- set realistic goals, allocate resources effectively, and identify areas where you can optimise your cash flow
#6 – Optimise Inventory Management
Optimising inventory management ensures the right amount of stock is available at the right time. When inventory is managed effectively, you can avoid excess stock or stockouts, which can tie up valuable cash or lead to missed sales opportunities. By accurately forecasting demand, tracking inventory turnover, and implementing efficient inventory control techniques, Streamline your operations and enhance cash flow by forecasting demand accurately, tracking inventory turnover, and implementing efficient inventory control techniques.
#7 – Consider Alternative Financing Options
Considering other financing options provides immediate access to capital that can be used to cover expenses and fund growth initiatives. If your business is facing a cash flow deficit, it may not have enough cash on hand to meet its financial obligations (such as paying employees or suppliers). Explore loan options or lines of credit to secure the necessary funds to bridge the gap and maintain smooth operations. This capital infusion enables the business to meet its immediate financial needs and avoid potential cash flow disruptions.
#8 – Invoice Financing
Invoice financing provides immediate access to funds tied up in unpaid invoices. This is how it works.
- A business that needs immediate cash flow sells its unpaid invoices to a third-party finance provider (invoice financing company).
- The financing company pays the business a percentage of the total invoice value (usually ranging from 80 to 95 percent). The exact percentage depends on factors (e.g., the creditworthiness of the customers and the industry).
- The business receives the cash advance within a short period (within two to four business days. This infusion allows the business to meet its financial responsibilities, pay suppliers, and cover operating expenses.
- The company takes over the role of collecting payments from the customers on the business’s behalf. They handle the follow-up, payment reminders, and invoice collection process.
- Once the customers pay the outstanding invoices, the invoice financing company disburses the remaining balance to the business minus a small fee or discount. The fee is usually a percentage of the total invoice value or a flat rate based on the time it takes for the customer to pay.
Leverage invoice financing so that you can accelerate cash flow. It provides a reliable and predictable source of working capital to help you cover your immediate financial needs.
As a reminder, invoice financing is not a loan but a way to unlock the value of unpaid invoices. The financing company assumes the risk of collecting the payments, reducing your exposure to late or non-payment by customers.
#9 – Consider Offering Subscription-based Services
Offering subscription-based services provides a consistent and predictable revenue stream. Instead of relying on one-time purchases, subscriptions generate recurring payments at regular intervals, e.g. monthly or annually. This stable cash flow allows businesses to manage their finances better and plan for the future.
It often results in higher customer loyalty, reducing customer churn and the associated costs of acquiring new customers. Retain existing subscribers and continuously attract new ones to achieve a steady cash flow.
#10 – Leverage Technology
Technology helps manage cash flow better by offering tools and solutions that enhance financial visibility and improve decision-making. Accounting software (like Freshbooks or Xero) tracks receivables, pays bills, and manages budgets efficiently.
Mobile apps offered by financial institutions and platforms enable real-time monitoring of accounts and give insights into cash flow status. Technology also allows for the following:
- mobile deposits
- expense monitoring
- online payment platforms
- inventory tracking software, and
- scheduling apps
#11 – Manage Cash Flow During Growth Periods
Managing cash flow in growth periods ensures sufficient funds are available to meet increasing financial demands. Businesses like yours usually need additional working capital, investment in resources, and effective management of debt and payments during growth periods.
Carefully monitor cash cycles, optimise debtor and supplier management, and implement systems and processes so that you can maintain a healthy cash flow position. It allows you to cover expenses, pay employees, and mitigate risks regarding business expansion.
#12 – Seek Professional Help from an Accounting Service Provider
Accounting services offer accurate and timely financial information through services like cash flow statement preparation. They analyse past and current cash flow trends to create projections and enable business leaders to anticipate potential financial challenges and make informed decisions.
Accountants also help identify deductible expenses, optimise tax planning, and ensure timely invoicing, all contributing to better cash flow management. Hiring a reliable accounting services provider in Singapore can give businesses the expertise and support needed to improve their cash flow.
Conclusion
Remember, optimising your cash flow requires ongoing commitment and monitoring. Implement the tips discussed above and partner with a trusted financial services provider like Reliance Consulting to navigate the complexities of managing your business’s finances with confidence.
For personalised guidance and answers to your specific questions, contact Reliance Consulting Services today. Take control of your cash flow and set your business on the path to sustainable success.
