No matter what your industry is, maintaining a strong and consistent cash flow is essential to be competitive, remain financially flexible and enable the pursuit of potential investment or growth opportunities.

Customer preferences, economies and market trends will always shift and change, but one thing will not: cash flow is critical.

If your business needs to improve its cash flow, you may need to look beyond the balance sheets and make some fundamental changes to how you do business.

By taking a deep-dive into all your business areas, you’ll be surprised at what you might find. But, where should you begin and how can you make sure that you’re doing things in the best possible way?

Why you need to manage cash flow

In its simplest form, cash flow is the movement of money in and out of your organisation and is the number one concern for business owners. The effects of good or bad cash flow are very real, and if it’s mismanaged or ignored for too long, the results can be devastating.

Having a solid strategy in place is the best way to safeguard against any problems.

1. Cash moves fast. Unlike some of your revenue streams, cash is not a passive acquisition. You need to be constantly reviewing, improving, tracking and overseeing your cash flow to identify both problem areas and potential for growth.

2. It’s central to your business. Just like your service, product or marketing, cash flow is an integral part of your business cycle. Always consider it as essential as everything else in your business.

3. Cash is complicated. While the overall principle is simple, once you look a little closer at your strategy, you’ll notice just how many ways you can save, or lose cash. Leave no stone unturned in your initial investigations.

Why you need a strategy

Identifying efficiencies in your daily operations is one thing, but knowing how to manage them is something else entirely. Cash flow strategies need company-wide discipline across all teams and areas of operation, as well as a very clear plan with solid milestones.

Without a robust plan and organisational understanding in place, you may end up missing out on opportunities to reduce costs, increase returns and fund sustainable growth.
Here are some strategies you can look into.

Adopt best practices

Integrating best practice in everything you do is the most fundamental way to improve your cash flow. From the centralization of accounts receivable, team unification, smarter billing and the adoption of key performance indicators (KIPs), weaving best practice throughout daily operations is vital to business stability, flexibility and growth.

Optimize your financial functions – It’s surprisingly common to make mistakes on invoices, which delay their payment. Make sure that they are accurate at all times, and if you haven’t already, create a firm schedule to follow up on collections. If your clients don’t end up paying at all, it might be time to consider using the services of a debt collection agency.

If you’re having issues with collecting payments, consider Debtor Finance to help you maintain cash flow or consider a full-service facility that takes a more holistic approach. You can also talk to suppliers and vendors about renegotiating contracts, or research new market entrants who may be more aligned to your needs and budget.

Upgrade your systems – While this may take some upfront investment, having modern systems in place will eventually pay for itself. With the right tools, you’ll be able to deliver invoices electronically, speed up payments through an online portal and encourage more efficient reporting and communication with stakeholders. To make things as simple as possible, you can implement our Cash Connector, which integrates with your accounting software to allow access to funds from unpaid invoices.

Improve your inventory – By periodically analysing accounts and SKU profitability, you’ll be able to identify which inventory items are obsolete, slow-moving or simply not selling. You can also take a closer look at where you source that inventory and whether or not you’re procuring it in the most efficient way. For instance, you might import from abroad at a lower cost per unit, but bulk orders and lead times might make them worth less when compared to more local options.

Take it enterprise-wide

Implementing new ways of working within a business is always a challenge, especially if you have more than one branch or location. To gain a holistic, enterprise view of your business’ cash management, you’ll need to fully understand and track your sources and uses of cash in all departments and locations. Ask team leaders to prepare regular reports on their operations, so that you’ll be able to:

Understand how cash moves around the business, and how the wider finances are looking.

  • Track progress alongside KPIs and other benchmarks.
  • Be able to put together responsible cash spending plans.
  • Allocate the appropriate amount of cash for different areas or locations of the business, depending on their needs.
  • Offer bonuses and incentive schemes for staff who perform according to the new strategy.
  • Understand how much cash you have available for office improvements or equipment upgrades.
    Identify hidden assets that could help with cash flow.

Shift the company culture

Effective cash management depends on operational areas such as accounts payable, accounts receivable, inventory and overheads. To improve these areas, senior company employees must actively encourage better cash flow wherever possible.

Changing company culture is no easy task, but if approached in the right manner can make a big difference. You’ll need your employees to not just understand your reasons, but to buy into them as well.

To help all teams get on board with the new ways of working, it’s important to communicate the reasons for the shift, what the new policies are, and how it benefits everyone: not just senior management. To drive better performance across the board, you can even link compensation and bonuses to the achievement of predetermined cash flow goals.

For a real-world example, read our article on how transport and logistics businesses have improved their cash flow.

Understand your cash cycle

As part of every business operation, there will be periods where you’ll be between invoice, or income streams are affected by seasonality. This is known as a ‘cash conversion cycle’, which measures the time a company needs to convert its inventory or other materials into cash. To take full advantage of this approach, you’ll need to understand your accounts – both receivable and payable, and if possible, the amount of time you need to sell inventory.

An example of this can be found in your billing. If a client typically has 30 days to pay you, do you have the means to cover your outgoings in the meantime? By understanding the timing of your cash flow, you’ll be able to predict when you need to push a little harder to keep everything moving. If you do anticipate late payments, consider Invoice Financing which helps you turn your unpaid or outstanding customer invoices into cash.

Project your expenses

Sometimes, it’s easier to focus on the money coming in, rather than what’s going out. If you don’t fully understand your operating expenses, they will eventually become an issue. Typically, there are four types of expenses: debt payments, cost of inventory, asset purchases and operating expenses. By projecting your expenses with historic data and internal reviewing, you’ll be more capable of making safer financial decisions.

Operating expenses – Typically consist of normal overheads such as payroll, taxes, insurance, utilities, rent and repairs. These expenses can be both fixed and variable: for instance, rent will stay the same every month, whereas utilities may fluctuate.

Goods sold – You can use historical sales data to predict how much inventory you’ll be able to sell, and then offset the costs with how much you bought it for.

Major purchases – If your business is expanding or upgrading, you’ll likely be putting up a large upfront cost. By including this cost in your overall spending plan, month on month, you can be better prepared for making the purchase.

Debt payments – Debt payments are one of the easiest areas to predict when putting together your cash-flow budget. Leasing and mortgage payments will follow an agreed schedule with the lender, and will only vary if there is an overdraft or emergency loan.

For good times and bad

Today’s business world has never been more competitive. By using the above strategies you can maintain your edge and remain cash-healthy in both good and bad times: even if there’s a recession. The most important thing is to remain consistent and consider your culture shift as a permanent one.

Cash flow strategies are not only for the tough times: they can help you build up strength when things are good, so that you can survive when there’s any kind of downturn. Use the time to get your operations in order, and that you have the means to support the business whenever something unexpected happens. It’s also a good idea to consult with professionals if you’re facing cash flow problems.

For more ways to help your business stabilise and grow, read our Surviving Cash Flow Challenges guide or explore our range of business finance products.