How to manage your cash flow

In a perfect world, businesses would get paid as soon as they made a sale. 

Imagine how easy it’d be to run a business where you receive your payments with no delays. You’d always have money to invest or spend on upgrades, and you’d constantly be able to keep your staff and suppliers happy. 

Unfortunately, in the real world, cash flow is less straightforward.

You may be making all the money in the world, but an ill-managed cash flow can open up your business to a range of issues. In fact, it’s been estimated that approximately 82% of businesses fail due to cash flow problems. 

So, as you can probably tell, it’s important for businesses to effectively monitor and manage their cash flow. 

Why is cash flow important? 

Cash flow is the way money flows in and out of a business. Some businesses have a constant stream of income, allowing them to pay off all of their expenses, whilst others experience a dreaded lag, causing them to fall short. 

To avoid situations where businesses don’t have enough cash to cover their expenses, it’s important to have solid cash flow management strategies in place. 

Cash flow management is about ensuring that there’s always enough money in the bank to pay off your business expenses, even when you’re waiting on payments. 

Poor cash flow management is detrimental, as if you don’t have accessible funds at all times, you won’t have enough money to pay your suppliers, employees and pending invoices. This has led to the demise of many businesses. 

The good news is that there are an array of effective cash flow strategies that you can implement to keep your business flourishing, even during tough times.

7 tips to manage your cash flow

It’s important for businesses to have a positive cash flow, or in other words, more money coming in than going out.

We’re going to cover some cash flow management strategies that will help you keep your business afloat. 

 1. Measure your cash flow

Measuring your cash flow is an effective technique that’ll help you stay on top of your finances. It helps you estimate your future situation so you can come up with the best strategies to future proof your finances.

To measure your cash flow, you need to look at the cash you have at present as well as any payments you’re expecting in the future. Whilst you’re doing this, make sure to keep a record of all the dates your future payments are meant to come in.

Next, calculate all of the expenses you need to pay off. Note down how much each of these payments costs, when they need to be paid by, and what they’re for. During this process, you may even find that you’re spending too much, or making unnecessary purchases. These insights will allow you to better manage your spending. 

By measuring and monitoring your income and expenses, you’ll be able to plan for those times where you’re awaiting payments to ensure that you always have enough money to pay off your expenses.

Understanding your cash flow will help you better plan your payments, allowing you to keep your business afloat even during quieter or less profitable periods.

2. Increase cash flow by offering discounts on early payments

A great way to encourage customers to pay you faster is by offering incentives for early payments. Whilst this strategy may result in an initial decrease in revenue, it’ll help you maintain a positive cash flow, allowing your business to run more smoothly. 

3. Send invoices straight away

Although it can often take a while for customers to pay their invoices, immediately sending off invoices will decrease the overall time you spend waiting for payments. You might also consider asking for 25% or 50% down payments prior to commencing work to ensure that cash flow can be well managed.

4. Budgeting 

If you’ve been struggling with your cash flow, budgeting will help you keep track of your income and expenses. It will help you ensure you’re only spending money where you need to so you’ll always have enough cash to pay off your expenses. 

5. Delay your payments

Delaying your payments is another cash flow management strategy that will help you maintain a positive cash flow. Try to pay your invoices just as they are due, rather than paying them earlier than you need to. Whilst it may feel good staying on top of your payments, paying too early may leave you with a negative cash flow and inhibit you from paying off your other expenses. 

If you can, you may also choose to negotiate terms with your suppliers to see if you can delay your payments even longer, giving you a greater payment window and more time to plan your cash flow. 

6. Line of credit loans

Organizing a line of credit loan can provide you with security if you ever find that you don’t have enough money to pay off your expenses. 

These loans have a credit limit, meaning that you can only borrow a certain amount of money at any given time.

If you’re considering a line of credit loan, make sure to borrow this money before you actually need it. Banks are unlikely to loan you this money unless you set it up in advance, so keep that in mind if this is an option you wish to consider. 

7. Invoice factoring

If you don’t want to take out a loan, invoice factoring is another great way to manage your cash flow. 

Invoice factoring is an arrangement whereby a factoring company instantly lends you money whilst you wait for your customers to pay their invoices. Then, once your customers pay their invoices, you pay this to the factoring company, as well as a fee for the factoring services. 

Whilst the factoring company gets to keep a portion of your invoices, this option is an easy way to maintain a positive cash flow during times of need.

In today’s ever-changing financial environment, managing cash flow is more important than ever. Luckily, there are many effective cash flow management strategies that can help your business stay on top of its finances, even during difficult times. 

Are you ready to manage your cash flow? Chat with us today.