How to Increase Cash Flow & Drive Growth
If you’re a business owner wondering how to increase cash flow, you’re not alone. After all, you have a lot of expenses to stay on top of. From paying your staff to keeping up with the rent to meeting all your many other financial obligations, there’s a lot to keep track of. And without enough steady cash flow to convince investors and lenders of your company’s financial health, things can quickly start to feel overwhelming.
But don’t worry — we’ve got you covered. In this article, we’ll discuss how to get cash flow to work for you. We’ll start off with some basics and then move on to ten useful tips on how to increase cash flow in business operations. The best part? You can implement these strategies immediately!
Keep reading to learn how to increase cash flow and boost your company’s growth in no time.
What is Cash Flow?
Cash flow refers to the amount of cash a business brings in or spends over a certain time period. Gauging cash flow brings transparency to your company’s operations. It allows you to pinpoint the amounts and sources of your inflows of cash — how much money you’re taking in from sales or fees, investors, or loans — while calculating the current and future monetary outflows that deplete these amounts.
Cash Flow vs Profitability
It’s important to understand that cash flow and profitability are not the same thing. Where profitability indicates how the company is faring overall with respect to its income and expenses, cash flow is a reflection of short-term liquidity. You can have a profitable enterprise and still have negative cash flow. It’s also possible to have a positive cash flow and be unprofitable. When determining the health of your enterprise, it’s important to keep both cash flow and profitability in mind.
How to Improve Cash Flow: 10 Tips for Success
There are many ways to generate cash flow, but how do you know where to start? Here are ten powerful cash flow management strategies that you can start implementing right away.
1: Issue Invoices With Clear Payment Terms ASAP
It might seem obvious, but if you’re not getting your invoices out as quickly as possible, you’re sabotaging your cash flow. Nothing can sink your company faster than failing to ask for the money you’re owed. Customers and clients are all too happy to delay payment unless and until they are invoiced, so don’t expect money to just show up at your doorstep — you need to ask for it.
Don’t expect timely payment unless you define, in no uncertain terms, when the payment is due. Invoices should indicate whether, for example, payment is due immediately, net 15, net 30, or on some other payables timetable.
If you’re having trouble getting invoices issued quickly enough, then it’s time to undertake a thorough assessment of how well your invoicing system is supporting your business. With all the invoicing software solutions on the market these days, you should be able to create and send out invoices on time, with a minimum of effort, and at a low cost.
2: Follow Up On Past Due Invoices
One of the most robust cash flow strategies you can employ is following up on past-due invoices. If you have customers or clients who aren’t paying fast enough, you need to follow up with them ASAP. You negotiated payment terms — or set up standard payment terms that they’ve agreed to — for a reason.
If your business is like most, you need that infusion of cash to cover your expenses in providing the goods or services and to meet your projected profit margins. Customers who hold up payments hold up your business. If your customers are slow to pay, try these collection methods:
- Send invoice reminders. If payment isn’t received by the due date, send an email reminder the day after the payment should have been received. And then if the payment still isn’t received within a short period of time after that, send another email. You should also consider following up with a phone call and a letter. Be polite but be firm. You’re not asking for a handout. You’re simply asking them to pay what they owe.
- Send preemptive reminders. If you’re concerned that payments will be late, you can create a system for sending out pre-emptive reminders. Some companies have success — especially with customers who repeatedly pay late — when they proactively reach out to customers with a heads-up that their payment is coming due. The idea behind the preemptive reminder is that the sooner you get on the customer’s radar screen about payment, the better the chance you’ll be paid on time.
- Consider charging late payment penalties. Incentivize your clients to pay on time by adding a late payment penalty to the terms and conditions of your invoices. Be clear about the due date and when the late payment penalty kicks in. If you have to send a second invoice, add the late payment penalty amount to let them know you mean business.
- Offer incentives for early payment. Everyone likes to save money. Give your customers the chance to receive a discount on future products or services if they pay their bill before the due date.
3: Increase Your Prices
Yep, we’re talking about one of the hottest topics right now: inflation. But ask yourself: When was the last time you took a long hard look at the prices you’re charging your customers? Are your fees in line with your competitors? Has your cost of goods sold (COGS) gone up due to an increase in materials costs, logistics and transportation costs, supply chain issues, or other matters outside of your control?
If so, it may be time to consider increasing what you charge for your goods or services. In fact, you might actually see your business increase after implementing a rate hike. Many prospective buyers often correlate price to value, so they may find that what you’re offering is even more attractive at a higher price point.
4: Implement Spending Cuts
The saying “you have to spend money to make money” may be true, but that doesn’t mean you can’t cut down on what you have to spend. That’s why it’s a good idea to review your business expenses on a regular basis. Look at every expense with an eye toward where and how you can reduce overhead. For example:
- Take a look at your purchasing options. Can you source materials, supplies, and equipment from new vendors at lower price points? Have you thought about renegotiating prices with your current suppliers? Is there a way to consolidate orders to achieve economies of scale? If you buy it, revisit it. You might be surprised where hidden savings lie.
- Take a look at your staffing and payroll. Are you making the best use of the staff that you have? Are you overstaffed in some areas of your business? Is there a way to reduce payroll without damaging your business? Nobody likes to implement a reduction in workforce if it can be avoided, but there are times when the company’s overall health must come first.
- Downsize or renegotiate your rent. Do you really need all of your office or warehouse space? Is the rent you’re currently paying in line with what the market demands? Consider what wiggle room you might have in reducing the amount you’re paying for operating space and see if there are opportunities to save.
5: Increase Efficiencies
Any business owner knows that efficiency is the name of the game. So ask yourself if there are ways to produce your goods and services more efficiently. Saving money and increasing cash flow isn’t just about cutting costs — often there are ways to do more with what you have.
For example, are your business processes running as smoothly as possible? What time wasters can you identify? Where might you be duplicating effort or under-working a system? Many businesses invest in automated systems to save time and resources but never fully get them fully implemented. If that sounds like you, see what you can do to take full advantage of all of your existing internal systems.
6: Let Your Cash Work For You
If you have excess money on hand, you could be missing a slew of cash flow improvement opportunities. Consider ways that your extra cash could earn income, reduce expenses, or enhance your business offerings. For instance:
- If you have money sitting in a checking account that doesn’t bear interest, consider moving it to a savings account with a high-interest rate.
- Use that excess cash to help pay off your high-interest loans.
- Invest in new technology that will save time and money.
- Prepay some of your expenses.
7: Consider Outsourcing Select Business Functions
Not every company has the resources to maintain all its needed business functions in-house. If your company is employing people whose efforts don’t fit squarely within your business’s core competencies, it may be more cost-effective to outsource these tasks. Look at how your internal marketing, bookkeeping, human resources, and IT functions operate, and ask yourself how much you could save if you hired outside contractors or service providers instead.
To determine whether or not outsourcing would benefit your cash flow, ask yourself:
- Whether the function at issue is in your company’s wheelhouse
- How much you’re paying to have the work performed in-house
- Whether the person performing the function has enough work to justify a full-time salary
- How much you could save if you hired an outside professional perform the function on an as-needed basis
8: Consider Invoice Factoring
If you operate a business that has outstanding high-value invoices and you’re looking to up your cash flow immediately, you might want to consider invoice factoring to raise money for working capital.
With invoice factoring, businesses can realize cash from their accounts receivable by selling the right to some of the proceeds of an outstanding invoice to a third party. Typically, this third-party factoring company will pay you most of the invoiced amount immediately — usually 70-to-90% — and then collect payment directly from your customers.
9: Consider Renegotiating Your Existing Service Contracts
When was the last time you reviewed your internet, cell phone, and janitorial service contracts? There are savings to be had by exploring alternatives to these and other suppliers or renegotiating existing contracts. You’ll find that companies will go to great lengths to save or win your business.
Alternatively, you may find incredible deals when signing up as a new customer. Do some comparative shopping and leverage incentives and other cost-saving perks companies are offering to negotiate some better deals.
10: Know Your Cash Needs and Plan Accordingly
There’s no substitute for keeping on top of your cash flow and planning for the proverbial rainy day. Make sure your accounting records are always up to day so you can anticipate future business needs based on historical data. By keeping track of important business milestones and anticipating business trends — such as seasonal slowdowns or holiday upticks — you can predict and plan for future cash needs and even apply well in advance for financing if warranted.
How Paystand Can Help You Increase Cash Flow
If you’re ready to maximize cash flow, Paystand’s B2B payments platform has everything your business needs. As the largest B2B receivables, payables and payments network running on a commercial blockchain, Paystand’s blockchain payment processing solutions make it possible to automate payments, eliminate transaction fees, and enable new revenue.
If you’re ready to find out how to create cash flow for your business using the latest technology, contact us today.