How To Improve Your Cash Flow

on Saturday, 14 November 2015.

The term 'cash flow' refers to the amount of cash available at any point in time in a business. A business could be making plenty of profit but have no cash in the bank.  This typically happens where you have to pay suppliers prior to being paid by customers, therefore there is a time lag in between your supplier needing payment and the cash being available to pay the supplier.

Whether you just want to improve your cash flow or you have run into cash flow problems you are definitely not alone and this article will provide you with 5 powerful tips to increase your cash flow.


How to improve cash flow

Cash flow is important to any business but can be more of a problem where goods or services are being provided to the customer prior to receiving payment i.e. on 30 day account.

Nearly always the key problem to cash flow is having to pay suppliers prior to getting money in from customers.

The most common root cause is a rapidly growing business although of course there are many different reasons.


1. Reduce Average Days to Pay

Moving your customers onto a 14 day account will be a step towards improving cash flow.  Or if you prefer to be more subtle, change the goalposts slightly.  For example if your current terms are 30 days from end-of-month change it to 30 days from invoice, this means you can potentially get your payments up to 30 days sooner.

2. Incentivise Your Customers to Pay on Time

Offering an incentive for customers to pay you on time is often worthwhile and get the cash in your hands quicker, a common example is applying a small discount to the order say 2% if they pay within seven days but it doesn’t have to be monetary.  This is probably the most common way to get cash rolling in sooner.  Alternatively you could send them a free product or reduce their delivery time.
If you are changing the goalposts it is a good idea to offer an incentive to your customers to aid cooperation.

3. Remind Your Customers to Pay

A lot of us tend to overlook the obvious, a plight and friendly email can do wonders to get the money rolling in sooner and get your bank account looking much healthier.

4. Cut Back on Bad Payers

Assess your customers to find out who were the worst payers and consider reducing their payment terms, credit limit and consider increasing their prices.  Wherever possible avoid losing customers, it could make worst of it.  Assess whether the improvement in your cash flow is more important than the customer you may potentially lose.
Where possible assess bad payers before they happen it is advisable to run company credit reports on a regular basis.

5. Get Better Supplier Payment Terms

Finally one of the effective methods of improving your cash flow is to get better terms from your suppliers.  The most important thing is to communicate with your suppliers.  Never assume because your customers are paying you late you can pay your suppliers late too.


Finally there are no doubt many other ways to improve your cash flow, you may wish to make a list of your own.  Above all if you are experiencing a problem take action, your accountant will often give you advice and be able to analyse where your biggest problem lies.  Improving your cash flow isn't something to be done just once it should be an ongoing exercise and should be evaluated regularly.

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