13 Ways to Improve Cash Flow (2024)

If your business is seasonal or cash flow tends to follow a cycle, an annual budget andaccurate cash flowstatement can shed light on just how much money you’ll need each month topay recurring bills. You’ll need to save money from the high-revenue months tocover overhead during lower-revenue months. A monthly cash flow forecast can revealpotential shortfalls and give you time to seek extra cash if needed.

If you have limited cash flow, one solution is to set up a line of credit. Like with acredit card, you’ll have money to spend that you can pay back during better monthsin your business cycle. Unlike a term loan, you’ll only pay what you use, alongwith interest on the outstanding balance. Best of all, once you’ve paid it off,your line of credit replenishes and is available again when and if you need it.

While your business may offer clients 30- to 60-day payment terms, you may need the moneysooner in order to pay bills, order inventory, etc. In this case, you can’t affordto wait for the payment deadline. One solution is to offer your clients a discount inexchange for earlier payment. Alternatively, you could use invoice factoring. Thisfinancial product enables businesses to sell accountsreceivable at a discount to a third-party factoring company. The factoringcompany advances up to 90% of the invoice upfront and takes responsibility forcollecting payments.

Extending the payment cycle of your suppliers is a common way to obtain cheap financing.With this strategy, you simply choose to pay certain bills past their due date. However,it’s not a long-term solution, as it can impact your credit and sully yourrelationship with suppliers.

There are two ways you can protect yourself should you decide to stretch out payables.For one, you can negotiate the due date to a date on which you are confident you canpay. Or, you might want to reconsider your payment agreement altogether. Some serviceproviders will allow for annual or semi-annual payments instead of monthly. Payingannually upfront might even net you a discount.

Is overspending putting you in the hole? Many businesses approach this problem by cuttingthe largest expenses, such as inventory, marketing or labor, first. That’s amistake, as these are typically core to business operations. Instead, consider cuttingnonessential costs such as landscaping or housekeeping first. Then, audit your overheadexpenses, including rent and utilities. See where you can cut back, get better rates orrenegotiate contracts.

Selling products or services at too low a price can negatively impact your margins. Takea step back and audit your products and services to determine the fully loaded cost ofdelivering them. With that cost in hand, you can determine whether you are charging toolittle and hurting your bottom line.

While many businesses balk at the idea of raising prices and potentially alienatingcustomers, research shows customers are more likely to accept a price increase if itcomes with an improved experience.

Start with your top sellers or those that have less competition in the marketplace. If itdoesn’t hurt sales, you can go ahead and roll out increases across the rest ofyour product line.

Increasing sales is an easy way to boost your cash flow. It’s even easier whenyou’re selling to customers who are already fans of your products or services. Twoclassic approaches: upselling, or selling upgraded and more expensive products orservices to the same customer, and cross-selling, or finding ways to sell differentproducts and services to the same customer. For example, a gym might consider upsellinga six-week training package with a new membership deal. And ecommerce sites oftencross-sell their customers under the header "You might also like…”.

Both techniques hinge upon making the sales pitch natural, or not making the customerfeel pressured. Your goal is to keep existing customers happy and buying your productsor services.

Accepting credit cards translates to quicker payments and fewer bad debts. It alsoimproves the likelihood of purchases. A Square survey (opens in a newtab) reported that 35% of consumers would shop elsewhere if abusiness didn’t accept credit cards. However, credit card companies typicallycharge a fee to merchants that use their service, so you’ll need to weigh thosecosts against the benefits of quicker payments.

Just like credit cards, an online payment option—and an ecommerce shop in general—makesshopping more convenient for your customers. It also can help you move inventory moreefficiently. Take, for example, a walk-in bakery business. There’s little controlover how many pastries it sells or throws out on a given day. If that same businessmoves ordering online, it can save money on its storefront, bake to order, and perhapseven ship nationwide.

If you’ve got a product-based business, you know that you need to keep tabs on howmuch merchandise is on-hand. If you don’t have a clear sense of how much inventoryyou have at any given time, you run the risk of overstocking, thereby creating waste andtying up cash flow in that stored stock. Consider investing in an inventorymanagement system that integrates with your accounting software. That way,you’ll maintain a real-time view of how much stock you have on-hand, how much youpaid for each product, how much you actually need at any given time and more.

Are you adding unnecessary materials like tissue paper and branded bags to your products?It may be time to slim down your packaging. Are certain products moving slower thanothers? Consider phasing out and focusing on your top-selling products instead. Arepayroll costs becoming a drain? Consider cutting overtime and excess staffing as much aspossible.

If you’re a good customer, your vendors may be more than happy to cut you a break.Or, they may throw in perks such as free shipping or extra products, especially ifyou’re buying in bulk.

Are you on top of your invoicing? The more promptly you send out invoices, the quickeryou’ll get paid. And, in turn, you’ll benefit from healthier cash flow. Ifinvoicing is consistently lagging, it may be time to invest in accounting managementsoftware. The best accounting software helps you ensure accurate, timelyinvoices while avoiding potential errors from manual bookkeeping. You’ll have adashboard with a real-time view of all transactions and an electronic trail of allrelated records, which will come in handy when it’s time for auditing.