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9 Methods to Increase Cash Flow for Small Businesses
November 22, 2019
How to Increase Cash Flow for Businesses

9 Methods to Increase Cash Flow for Small Businesses

If you’re a small business owner and your revenues are growing, you’re likely doing things right. If your profits are increasing year over year, you’re probably moving in the correct direction. But, one of the most significant errors that small businesses make at this point is complacency. It isn’t time to let your guard down.

Even companies that are growing can experience cash flow issues. These problems strike when financial, investing, or operational activities aren’t performing like a smooth-running machine.

Need an example? Sometimes payables are due before receivables come in; ergo debts must be paid before revenues are recognized. When this happens, you’re going to inevitably face cash flow issues in your small business.

As a catalyst, bills then won’t be paid in a timely fashion. This can, in turn, affect business credit scores, the ability to secure additional working capital, and general creditworthiness.

How to Can Increase Cash Flow

Increasing your business’s monthly cash flow may seem like a big undertaking. However, you might be surprised at how simple shifts in how business is performed can have significant impacts down the line in increasing and maintaining cash flow.

If you’re looking to improve your small business’ cash flow, it may be time to mull over some of the strategies outlined below.

Increase the Prices for Goods or Services

An increase in the price of whatever goods or services you provide may seem like an idea that is terrifying to consider. This is understandable. For many small business owners, an increase in pricing may lead to a reduction in overall sales.

However, this doesn’t mean that it’s wrong to experiment with fluctuations in pricing. By doing this, you can come to the ideal number. The goal is to determine how much your customers are willing to pay before sales begin to slow. Remember, there isn’t a good way to determine this without taking a chance.

Utilize a High-Interest Savings Account

Utilizing high-interest savings accounts will provide small businesses with liquidity while also working to improve overall cash flow. Many banks offer accounts that earn interest with minimum requirements of balance. In both business savings and money market accounts, interest rates will be higher than standard accounts.

Use Electronic Payment Systems to Improve Cash Flow

If you make payments to vendors electronically, your business can wait until the morning of a bill’s due date to make a payment. This delay in payment (without being late on a payment) will work to improve cash flow greatly.

In addition, business credit cards sometimes provide grace periods that can last for weeks. This can also do a good bit to increase the cash flow of your small business. In fact, you can obtain some solid rewards by paying with a business credit card! However, it’s crucial to not obtain too much debt before paying it off.

Immediate and Automated Sending of Invoices

This one is simple. By sending invoices to anyone who owes you money for products or services immediately, you reduce the delay that commonly occurs in invoicing.

With digital services like Flint and SquareUp that automatically send out invoices, you’re going to typically receive payment days faster than conventional methods. There are many pieces of accounting software that do this as well. This is great for increasing the cash flow of your small business.

Women Checking Inventory with Her Phone

Take the Time to Improve Your Inventory

It may be time to monitor the inventory that your business has in stock. Goods that are purchased but aren’t being sold as quickly as other goods can lead to cash flow problems.

Instead of purchasing more items that aren’t going to sell, it may be best to make markdowns. We know it’s difficult to cut down on inventory options. However, it’ll be better for your bottom line to try and sell what’s left of this inventory, and then focus on other inventory options in the future.

If you’re looking to earn extra cash flow for your small business, you need to drop emotions and be objective with your inventory.

Form Buying Cooperatives

Power comes in strong numbers. If you can find some fellow business owners who are like-minded and looking to pool cash reserves to negotiate bulk pricing from suppliers, it is recommended that you do so. Typically, suppliers will provide significant discounts to larger firms or buying cooperatives who plan to purchase in bulk.

Conduct Credit Checks for Customers

There will come a time when a customer isn’t going to want to pay you in cash. If they are one-time customers and are looking to pay for a product or service with a credit card, that’s pretty standard. However, if they’re paying a large amount or for a recurring product or service, be sure to conduct credit checks beforehand. If your client has very poor credit, it’s safe to assume that you aren’t going to be getting your payments in a timely fashion.

Sure, you may really want to make that sale to assist in the growth of your small business. However, late payments (or lack of payment) can have a substantial negative impact on your business’ overall cash flow. If you really need to make a sale with someone who has negligible credit issues, ensure that you set payments with higher interest rates.

Offer Discounts on Lending

All customers appreciate a good incentive. If you offer your customers of more expensive recurring products or services discounts when they pay ahead of time, you establish something that is a win/win situation for both yourself as a small business owner and your customers. 

Getting cash payments in early assists in ensuring that cash flow is increased and maintained in case of emergency.

Lease Instead of Buy

As the leasing of equipment, real estate and supplies will typically end up costing more in the long run than an outright purchase, leasing may seem very counterintuitive for those only wanting to look at the profit margin. Even if increasing income is your only goal, unless you find your small business cash flush, you are going to want to maintain streams of cash to handle day to day operations.

Through the act of leasing instead of outright purchasing, you will pay for an item in small increments. This assists overall cash flow. Additionally, lease payments are considered a business expense. As such, they can be written off.

Wrapping Up and Cashing In on Ways to Improve Cash Flow

Revenues grow. That’s the goal of every small business. When you hit this point, you’re checking all the boxes. When profits grow year over year, you’re doing things right. 

But don’t let complacency catch you when you least expect it! Use the tactics outlined above to ensure that your cash flow is at a point where you can avoid long term potential financial issues.

Interested in getting in touch with us to discuss options for small business financing to free up more cash for improvements in cash flow? Click below and one of our professionals will contact you in a flash!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].