Northern Accountants

Improve Cash Flow

12 easy ways how to improve cash flow in your business right now


Successful and responsible business owners know the importance of cash flow management.

Because without cash, your business will fail.

This principle doesn’t just apply to sole traders either. The same goes for SMEs, limited companies and large multi-national organisations.

That’s why knowing how to improve cash flow is such an essential part of being in business.

It doesn’t matter which products or services your business offers, there are a number of cash flow improvement ideas which can help keep money coming in to cover your expenses.

However, it’s often worth remembering that making a lot of small improvements is usually better than making one big one.

Get some ideas now - take a looking at the following 12 methods of improving cash flow:

1. Cut your costs

If you look hard enough, every business can identify nonessential costs where savings can be made.

Yes, it can be tough. But cutting overheads is by far the quickest, easiest and most important way to improve cash flow.


2. Reduce your stock levels

Having cash tied up in stock, materials or goods that are related to sales has a serious impact on cash flow.

If you can order and hold less, the impacts on cash at the bank are obvious – and it will reduce the need to offer discounts on stock (which could diminish in value) at a later date.


3. Invoice immediately

When you’re a business owner, particularly of an SME, it’s sometimes much easier to move on to the next task (or go looking for the next sale) instead of tying up all the loose ends on an existing project.

However, if you can get into the habit of invoicing immediately upon the completion of any work, you'll very quickly increase cash flow and see your levels of cash in the bank improve.


4. Don’t extend payment terms

Cash flow problems will kill your business. No ifs, no buts.

By making sure you do not extend your payment terms after completing any work, you’ll get your hands on your hard-earned cash as soon as possible.

If it’s feasible, tell all your customers that your normal payment terms are 14 days – and stick to it!


5. Offer discounts for immediate payment

Getting your hands on a customer’s cash quickly will always improve your cash flow.
Why not take advantage of the fact everyone loves a discount by offering one to your customers (if they pay immediately)?

If you do, it’ll be a win-win situation for everyone.


6. Take advantage of electronic payments

When it comes to settling your debts, using electronic payment methods can buy you time and improve your cash flow.

Paying electronically means you can wait until the day a bill is due and then make the payment. If you have access to a business credit card, using that can be a good idea too because they sometimes offer up to 28 days’ grace before you have to settle the debt.
Although this is one simple way how to increase cash flow, always make sure you pay the amount back in full or the extra interest charges incurred could make the process counterproductive.


7. Ask for a down payment on projects

They are probably thousands of small businesses all over the UK who regularly fund projects on behalf of their customers.

But why?
When a customer wants to utilise your services, making sure they fund the project is essential if you don’t want to get into cash flow problems.

When asking for a down payment, it’s essential to ensure that delays do not occur by having a fast and reliable collection process, such as Directli – a direct debit system that takes payments automatically.


8. Sell your unused equipment

Equipment that doesn’t work or is unused takes up space and ties up capital, which could be used more productively elsewhere in your business.

If equipment has been owned for a lengthy period, its worth (or book value) may be equal to or less than its salvage value. Therefore, any sale might result in a taxable gain.

If you are forced to sell below the book value and incur a tax loss, use this to offset other profits.


9. Don’t buy, lease!

Unless your business has vast amounts of surplus cash, leasing is well worth thinking about.

Whilst leasing equipment, goods or vehicles is normally more expensive than buying them (especially in the long term), doing this will allow you to pay in smaller instalments and subsequently help keep cash in reserve for other day-to-day expenses.

The added bonus of lease payments is that they are a valid business expense and can therefore be written off in the accounting process.


10. Ensure long contract payments are staged for your benefit

If a customer, due to their size or company policy, won’t enter into contracts where a deposit is required, negotiating staged payment terms is usually much better than losing the business completely.

When doing this, it is essential to make sure the payment dates exceed or match up with your costs – with the final 10% or 15% held by the buyer until final acceptance.


11. Turn your sales into subscriptions

Traditionally used for products which are consumed regularly and repurchased several times a year (such as newspapers and magazines), subscriptions are an ideal payment model for any business where the demand never ceases.

Not only will this method increase cash flow, it will also let you get your hands on cash to cover any costs upfront.

Here’s the best bit:
The main added advantage is that is allows you to secure future sales effortlessly.


12. Work closely with a good accountant

Even though an accountant can provide thousands of pounds in tax savings, some small business owners still view their services as an expense rather than an investment.
However, by analysing your sales and reviewing your cash-flow projections, an accountant can provide detailed insights into areas of your business which may otherwise get overlooked.

It could be something as simple as registering to make VAT submissions online – which avoids the risk of late payment fines and gives you an extra three days to pay – or forecasting ahead to help you plan for periods where cash-flow problems have typically arisen.

Either way, getting a good accountant who is willing to work closely with you will usually result in savings rather than added expenditure.

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