How can small businesses optimise their cash flow?

This might seem an obvious tactic but there are many ways for you to ensure invoices are paid faster so that cash comes in quicker. You can negotiate payment terms with a discount for shorter payment terms. If you have unpaid invoices, don’t shy away from those awkward conversations or if you do find it difficult an option is to instruct a specialist debt recovery agency. 

Companies whose product or service requires substantial cash or effort before they deliver are good candidates for asking clients for a deposit or milestone payment. Graphic designers, web designers, marketing agencies, PR agencies and even construction companies fall into this bucket. Set out your terms clearly at the quoting stage to safeguard cash flow further down the line. 

Examples of what you can request can include, if payment terms are 15 days, ask for 30 days. If they are 30 day’s, ask for 45 etc. 

 

Valued clients will find that requesting a more favourable arrangement will at least be considered but be aware, you might need to be persistent. Afterall, they also have a business to run and cash flow will be just as important to them too. Even if you have asked before, there is little to lose by making the same request again. They might be in a different position this time. 

The reason why you would do this is to help spin-off more cash that can then be used for operations. 

 

A. There are only two ways to increase margin; 

Increasing charges – this is a real option for businesses with strong demand or a unique product or service. 

B. Decreasing cost to deliver products or services 

Financing purchase orders is a way to pay for much needed supplies ahead of having the cash available to pay for them, especially if you have a larger than expected purchase order. It is a chicken an egg situation, where you need the supplies to deliver your product, but you need the product to sell to have the money to pay for the supplies. This is a good option for manufacturing or merchandising companies that require a significant amount of cash to fulfil their purchase orders. As soon as you have the purchase order, the financing company will pay the vendor on your behalf so the purchase order can be fulfilled. 

Card processing has developed to such a stage these days that lots of small firms can take advantage of the lower turnover thresholds required by providers or even to the extent of one off irregular payments. We can put you in touch with service providers through our network of contacts so always give us a call if we can be of assistance. 

 

Consider which one of these strategies might help your business to manage cash flow, there are more options available if none of these seem feasible for you, we are always here to help and advise you.