Cash flow is a vital element when running a small business. It reveals the balance of money entering and leaving your firm at a specific point in time. That means it could offer a red flag if your spending is significantly greater than your income.
Managing business cash flow can prove tricky, especially when you’re starting out. Learn how to improve your cash flow with our seven handy tips.
What causes cash flow problems?
A range of issues can negatively impact your business cash flow. Some of these are easier to anticipate than others. Common cash flow problems include:
- delays in getting paid. Some 52% of small firms experienced late payments in 2022, according to the Federation of Small Businesses. These could restrict the amount of cash you have available in your bank account. So, you might have to chase clients and customers
- high running costs. These can still pose problems, even if you’re achieving plenty of sales
- failing to set the right pricing strategy. For example, your customers may be unwilling to pay the price you expect them to
- investing too much money, too soon. Overspending in the early days can quickly lead to a negative cash flow
- one-off or unforeseen expenses. There could be permits and licences which you hadn’t known about.
7 ways to improve cash flow
Taking a few small steps could improve your cash flow and help your business to flourish in the long run. From efficient invoicing to cost controls, there are plenty of potential fixes if you’re concerned about a shortage of money in the bank.
Explore how to improve cash flow in a business with these seven simple methods:
1. Invoice as soon as you can
Unless you’re paid at the point of sale, you’ll need to fire off invoices to clients before you receive any money. The sooner you can do this, the better. After all, delays at your end may slow the process down and harm your cash flow.
Credit-checking potential customers could also help you to spot risks in advance. Those with poor ratings might struggle to meet their commitments.
2. Know your rights
A customer must generally pay you within 30 days of receiving an invoice, unless you’ve agreed a different date. You can serve a statutory demand to formally request payment. There’s also the option to charge statutory interest on late payments.
Just remember there are two sides to this – you’ll have responsibilities too. For example, storing customers’ financial information in line with the Data Protection Act.
3. Consider early-bird discounts
Giving discounts to customers who pay promptly could also boost your efforts to achieve a positive cash flow. It doesn’t have to be a huge price cut. Even a small percentage off their bill might nudge them in the right direction. And that all-important cash should land in your bank account much earlier.
4. Control your costs
If too much cash is flowing out of the business, you’ll soon run into problems., Tracking work expenses could stop you leaking money and improve your cash flow.
Think carefully about buying big-ticket items that aren’t essential to your day-to-day operations. You may also want to keep a close eye on staff expenses, business travel, marketing methods, and even the size of your office space. Specialist accounting software should help you keep track of things.
5. Explore payment plans
Spreading out your spending is another potential way to increase the amount of cash you have at hand. You can often buy items like furniture, for example, with interest-free loans. Just be sure to keep up with the repayments.
Leasing equipment and business premises might also be an option in the early days when cash is particularly tight. It allows you to break down costs into smaller monthly payments, rather than buying outright in one go.
6. Shuffle the pack
Are some products selling more quickly than others? Doing an inventory check should reveal which items are flying off the shelves, and the ones that perhaps need freshening up.
Unsold products can fill valuable storage space and tie up your cash. Getting rid of these items, even at a discount, could help you to focus your efforts elsewhere.
7. Create a seamless payment process
Any friction at the end of the customer journey might cause frustration and lead to errors.
Offering clear payment instructions should support your cash flow by ensuring money always goes to the right place. You could also offer a variety of payment methods to suit the needs of different clients. For example, card transactions and bank transfers, as well as physical cash.
Getting paid on time
Learning how to improve cash flow in a small business needn’t be complicated. As we’ve seen, it’s often a case of tracking costs and encouraging timely payments.
Taking a flexible, transparent approach to payments could boost your business cash flow. And that’s where we come in.
Our Tyl portal* is a treasure trove of valuable payment data. By signing up, you can:
- track all the sales and payments that go through your card reader
- view and download invoices
- see all your transactions and settlement history
- check out when your busiest times are
- manage your users in one simple space.
Everything is just a click and a swipe or two away. And the best news? It’s free to use*.
*Tyl portal available to Tyl customers. Tyl eligibility criteria and fees apply.
Improving cash flow – FAQs
How to improve cash flow in a retail business?
Retail businesses live or die by their product selection. For that reason, you could improve your cash flow by pinpointing exactly what your target customers are looking for. Get this right and you should have products flying off the shelves – and a steady stream of income too. Get it wrong? You’ll be left with excess stock and slower sales.
Learn more about products and pricing with Tyl
Why should a new business focus on cash flow?
Cash flow can show a new business how strongly it’s performing, and whether it needs to trim its overheads. Working towards a positive cash flow could make you more attractive to investors. It may also give you the cash to expand your company, without having to take out loans.
Get more tips on starting a new business
What does ‘cash-poor’ mean?
If your business is ‘cash-poor’, you’ll generally have money tied up in assets or stock. But your access to physical money is limited. As a result, you might find it difficult to cover bills and other expenses if you can’t easily convert assets into liquid cash.
Disclaimer
This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.
Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.
Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.