21 Mar 2018
8 ways to manage cash flow
Written by Doug D'Aubrey

Managing your cash flow will help keep your business afloat and even become more profitable. But how do you do it effectively?

In my previous post, I explained how focusing on cash flow rather than profit is more important in a small business. Essentially, a P&L won’t tell you what’s in the bank, and if you don’t have money in the bank, you can’t operate. Here are 8 ways to keep cash your cash flowing:

1. Establish payment terms and stick to them

Being clear on your payment terms at the outset will aid cash collection. Not doing so makes it very difficult to determine when a payment is overdue, and to subsequently chase it. My blog on crafting great clients has more tips on this.

When payment terms are defined, don’t be afraid to chase payment. It’s your money after all! For your slower clients, why not send a reminder when the due date is approaching to increase the likelihood of on time payment.

2. Do your invoices

Sounds obvious doesn’t it! However for micro businesses with few employees, the main focus is on getting the job done; invoicing is often at the bottom of the priority list. While it’s great to be busy, remember cash is king and if invoices aren’t done, you will run out.

It goes without saying that the sooner you get invoices in, the sooner they’re likely to be paid. Not only that, invoicing in a timely fashion is good customer service and helps your clients manage their cash flow too.

3. Retainers

For frequent repeat clients, you can save time and improve cash flow management by offering a retainer. In doing so, invoices can be automated and payments received up front. Talk to your accountant about the best software solution for this.

Your client will benefit too, their expenditure will be clear and your service to them guaranteed.

4. Faster payment incentives

Where retainers aren’t viable, you could offer a discounted rate for invoices paid within a certain timeframe. This will act as a great incentive to your client and improve your cash flow.

5. Spend wisely

As mentioned in my last post, when you monitor cash flow you’ll see exactly where your money is being spent. Use this information to evaluate what you’re buying, is everything necessary and are you getting the value you expect from services? My blog on cost cutting has more on this.

6. Stock control

If your business uses materials or requires you to keep products in stock, review how much you hold. Excess stock will tie up your cash so ensure you don’t have more than you need.

7. Improved credit terms

When you take on a new supplier, negotiate on payables. Some businesses will agree to 60 or even 90 days!

8. Cash reserves

With all these points in play, my last tip should be easier to achieve and that is, to create a cash reserve. Every business has quiet times but effective cash flow management and a cash reserve will help manoeuvre these.

As ever, if you’d like help to implement any of my advice, why not contact me to arrange a Free Business Review? This is a genuinely free 2 hour session whereby I’ll come into the business and spend two hours giving you advice to make positive changes. Click here to arrange yours now.