Cash flow is the lifeblood of any business. Even a profitable business can experience financial pressure if cash is tied up in unpaid invoices, excess stock or underutilised assets.

The good news is there are several practical ways to improve your cash flow – without necessarily increasing sales.

 

Improve your debtor days and collection processes

Start by reviewing how quickly your customers are paying and identifying overdue accounts.

Make sure invoices are issued promptly, payment terms are clear and outstanding debts are followed up consistently.

It can also help to have someone specifically responsible for debtor collection rather than treating it as an occasional administrative task. Having a dedicated person monitoring outstanding invoices, making regular follow-up calls and addressing issues early can help prevent debts from becoming seriously overdue.

 

Talk to your suppliers

It may be worth approaching selected key suppliers to see whether they can extend your payment terms.

Moving from 30-day terms to 45 or 60 days, where commercially appropriate, can provide valuable breathing room and help better align outgoing payments with the timing of your customer receipts.

Of course, maintaining good supplier relationships is important, so have the conversation rather than simply delaying payment.

 

Talk to your bank

Your bank may have funding solutions that can help smooth out short-term cash flow, such as an overdraft, business loan or asset finance.

The key is to have these conversations before cash flow becomes critical. Talk to your adviser and bank early so you have time to understand the options available and decide what is appropriate for your business.

 

Use credit cards carefully

Paying creditors by credit card can provide some additional time before cash actually leaves the business.

However, this strategy should only be used where you are confident the balance can be repaid within the interest-free period. Otherwise, interest charges can quickly outweigh any cash flow benefit.

 

Consider injecting funds yourself

In some circumstances, business owners may choose to lend money to their business to provide short-term working capital.

If you do this, make sure the arrangement is properly documented and consider whether a commercial rate of interest is appropriate. Speak to your accountant or adviser about the tax and accounting implications before putting an arrangement in place.

 

Take a closer look at your balance sheet

Your balance sheet can also reveal opportunities to free up cash.

Consider whether you have unused or underutilised assets that could be sold, or excess and slow-moving stock that is unnecessarily tying up working capital.

It may also be worth looking at whether existing assets can be refinanced to release equity and improve liquidity.

 

The key is to act early

Cash flow problems are much easier to manage when you identify them early.

Regularly reviewing your debtors, payment terms, stock, assets and funding arrangements can give your business greater flexibility, reduce financial pressure and put you in a stronger position to take advantage of opportunities when they arise.

 

And remember – we’re only a phone call away if you’d like some tailored thoughts on improving cash flow in your business.