6 ways to improve cash flow in your business
Effectively managing cash flow is vital to the runnings of your business. We all like to see what money is coming in, but if we don’t also keep track of what money is going out and what is on hand, then your business might be heading for a crash without you even knowing it.
Cash flow is one of the most important metrics to follow - especially when it comes to forecasting the future growth of your business.
The difference between cash flow and profits
Firstly, we need to clarify that just because you have a profitable business doesn’t mean you have a positive cash flow. This is a common misconception for many new or small businesses.
It’s possible to have a profitable business with a negative cash flow. This isn’t a great situation to be in as a negative cash flow can become a big issue for your business. So, make sure you take the time (and effort) required to manage your cash flow and make the necessary changes to impact this.
There are a number of different measures you can take and tips you can learn to improve your cash flow in your business.
1. Use software to track your inflows and outflows
Invoicing software is the simplest way for you to keep track of your business cash flow. It can automate a lot of your business processes and also allow you to have a holistic overview of your business cash flows at any point in time.
Especially for small businesses, using invoicing software can help you organise and register all of your sales. This is the first step towards improving your business cash flow.
2. Send invoices out immediately
The more prompt you are with your invoices, the faster you’ll be paid. And if this is not the case, then you can send out a payment reminder letter with your invoicing software to those latecomers. If that still doesn't work, you can pick up the phone and call them.
Make sure that you’re clear, concise, and specific about all details on your invoice - especially the payment due date.
3. Offer various payment options for customers
The easier and more convenient you make it for your customers to pay you, the faster you’ll be paid.
In most cases, it’s much easier for your customers to manage their payments online. By offering your customers various online payment options such as accepting credit cards, debit cards or mobile payment, the more likely they are to pay you faster.
With SumUp Invoices, you can include an online payment link directly on your invoice. The invoice email will include a “Pay now” button so the customer can quickly and securely pay with their credit card.
With SumUp, you can also accept payments via card readers, mobile payment links and QR codes.
4. Reduce operating costs
Take the time to review your expenses, and identify areas where you can reduce your costs. Don’t spend money on expenses that aren’t necessary for your business, and be careful which areas in your business you choose to focus on.
Be careful to only cut costs where you can afford to, and in areas that will not hurt your business.
5. Encourage early payments, while discouraging late payments
You can try offering your customers a cash discount as an incentive to pay early. This is a tactic that often encourages your customers to pay you early on, which will effectively improve your cash inflows.
On that same note, you should also make it clear that just like early payments will be rewarded, late payments will be punishable.
If you’re still waiting on overdue payments, you can send out a reminder letter and also charge a late payment fee. This should encourage your customer to pay you ASAP, before the fee is further increased.
6. Experiment with your prices
Another way for you to increase your cash flow is by increasing your prices. Changing - and more specifically increasing - prices is something many business owners are scared to do.
There’s no guarantee that increasing prices won’t mean losing some sales, but it could also mean an increase in cash inflow. So, there’s no harm in experimenting with your prices and finding out how price elastic your customers are.
Knowing and understanding your flow
Your cash flow is a representation of all transactions coming in and going out of your business. It’s a good idea to keep track of your cash flow to understand the financial position and health of your business.
Knowing your business cash flow is not only a good thing for the future growth and expansion of your business, but it will also provide major insights into your business’s financial state, and where money coming in and going out of the business.