Small businesses throughout the world struggle to maintain a consistent cash flow that gives them access to the funds they need to grow and manage their business on an ongoing basis.
Even businesses that are benefiting from strong sales and rising profits can suddenly find themselves in trouble if cash flow issues hit them because their operations, investment activities, or financial management doesn’t quite go according to plan.
For example, it is not uncommon for small businesses to encounter situations where their debts are due for payment before their receivables are due. When this happens, business owners can find themselves unable to pay their bills on time and, in the worst-case scenario, may start to develop a poor credit score.
It doesn’t need to be like this. If your business is profitable, you can take some simple steps to ensure you have sufficient funds in your bank to meet your obligations.
Check out our list of seven cost-saving tips that any small business can follow to benefit from a significant increase in cash flow.
Severely reducing your business costs is much easier than you think if you follow these time-tested strategies for increasing cash flow.
Seven Simple Strategies that can Increase Your Cash Flow
1. Reduce your spending.
We’ll start with an obvious one. However, it is incredible how many small business owners don’t take a detailed look at their expenditure. Reducing your spending is a quick and easy way to improve your cash flow.
Start by scrutinizing all your costs. What expenditure is critical, what expense is beneficial, and what is entirely unnecessary?
Take a balanced look at where you can make cuts. Start with areas such as office supplies, subscriptions, and procurement costs. Where employees are involved, tread carefully. Try and avoid pay cuts, as this can lead to the loss of your most valuable employees.
2. Offer discounts for early payment
If you’re experiencing cash flow issues due to a delay between the bills coming in and your receivables being paid, offer your customers a reduction if they pay invoices early. The discount doesn’t need to be particularly significant; it just needs to be enough to give your customers an incentive to pay up as soon as possible. You can try different payment plans out with different customers to see what process is the most effective.
3. Keep an eye on your inventory
It could be that a significant amount of your cash is tied up in your inventory. Take a look at what products you are holding in stock and try to maintain a balance between having enough inventory on hand to serve customers while also ensuring that you don’t have valuable stock sitting in the warehouse tying up much-needed funds.
4. Increase your prices
Are you maintaining pace with inflation? Many businesses miss a valuable opportunity to increase the prices of their products and services in line with market changes.
Increasing your prices is not something you should do lightly. Make sure you research what your competitors are doing and develop a pricing strategy that helps you improve your cash flow without scaring your customers.
5. Enlist the services of collection agencies.
If you have a lot of bad debt sitting on your books, consider getting a collection agency involved.
These service providers can help you cost-effectively chase unpaid bills. While they will typically charge a percentage of the debt in payment for their services, collection agencies can help you pursue unpaid invoices without lifting a finger.
6. Consider legal action
If a customer has failed to pay a hefty invoice, you may have no choice but to go down the legal route. In some cases, the mere mention of legal action can be enough to make customers pay overdue bills. In others, you may have to follow through. However, if the outstanding payment is unusually large, it can be well worth the effort.
7. Develop a repayment system
In an ideal world, customers will pay for your products or services upfront. This will give you instant access to cash and boost your reserves. Consider implementing a rewards program through which customers can access discounts for paying for your goods or services in advance. It can both improve your cash flow and help to develop a loyal customer base.
Most small businesses stand to benefit from improved cash flow. Develop a cash flow strategy that takes the actions outlined above into consideration, and you will soon develop a system that works for your business.