small business cashflow

7 Valuable Small Business Cashflow Tips

By Mark Williams

Staying ahead in business requires a great amount of planning, financial foresight and solid cashflow management. Healthy capital is crucial for all businesses, but even more so for younger companies and startups. Without a steady ebb and flow of cash coming in and out of a company within the first year, it is crucial that there is sufficient control of the situation in order for the business to survive.

Knowing all too well the importance of maintaining your finances in business, this post aims to offer up some small business cashflow tips to help you turn the tide on poor money management.

1. To Control Your Cashflow, Understand It

Understanding your current cashflow situation is the first major step to taking control of it. Most small businesses will probably not consider their cashflow forecasts, which can be hugely detrimental. Taking an ad-hoc approach to managing income and expenditure misses a key aspect of running a business. Using cashflow intelligently can be a really simple step to take. Having cashflow sorted out through the early days of a business will help avoid negativity, problems with staff, suppliers and customers, and personal stress.

2. Be Smart with Payment Terms

An initial step that you can take to improve on your cashflow at an early stage is to focus on encouraging clients to pay faster. No business can survive with their bank account going through boom and bust because there is no consistent flow to your capital, it just comes to you infrequently, in massive chunks.

Communicating your payment terms before starting a contract or delivering a service can also help avoid a low bank balance. Invoicing quickly can help with this – invoicing as soon as work is completed is fine, but sending the bill before work starts might be better. If your client isn’t too happy about this, give them a certain number of days to pay, or stress the costs that you incur during the work. That way they know your work costs you more than just your time, and they’ve had the invoice already that they can pay as they see the fruits of your labour.

Unfortunately, not every customer will be able to pay early or on time. A customer that does not pay on time can become even more of an expense if you do not do something to rectify the problem. So you can offer a payment plan if it is a large sum – simply break the amount down into smaller pieces and give a deadline for payment of each one.

In the worst case, your customer will be a frequent problem with late payments. To defend against this, think about how you will handle poor customers and add it into your payment terms – think about charging interest each day an invoice goes unpaid, and don’t be afraid to go to a small claims court if necessary. Not being paid for work is disrespectful at the very least.

3. Schedule Everything

Another tactic to employ is to schedule your payments meticulously. If you or your colleagues usually do your business banking at a certain time, try to schedule your payment management at that point, too. If you note down when the payments are scheduled to go out, you can accurately figure out and forecast your balances ahead of time.

One mistake a small business can make with their bills is to try to pay them all off at once. Granted, there is a sense of satisfaction in dropping the burden of the bills once they are paid, and it frees up time for other work.

Remember to always think about the due date of an invoice, not the date you receive it – if your supplier has given you some breathing space, breathe.

4. Consider a Business Credit Card

Getting your hands on a business credit card can be a great way to keep your cashflow in check, as well as build credit and reap some benefits from the card providers. As long as you know your balance and can pay it off before interest begins to stack up, your credit rating will be positive and you will have a nice reserve of capital (well, credit) should you need to make a purchase. The convenience of being able to instantly buy something, then pay for it later is justification enough for having a credit card most of the time. Think about it – you’ll be paying suppliers immediately, but you won’t actually get the bill for a short while. It’s a good idea as long as you are always able to pay it off.

5. Earn Interest

A really effective way of helping your businesses cashflow is to keep your money in the right account with a higher interest. This way of having your money work for you is really straightforward, and most banks will have higher interest-earning accounts available for even the most basic of business accounts. Even if there’s only a small trickle of interest into your account, it adds up.

6. Be Tactical with Payroll Timing

When handling payroll, it is obviously important that you do your best to keep your employees paid on a consistent basis. Whether this is weekly, bi-monthly or monthly is dependent on their contracts, which should be dictated by your own forecasting. In order to cover payroll painlessly, it is important that you pay out when your accounts are flush.

For businesses that have a higher frequency of cash deposits, payroll should be no problem. However companies with slower cashflows will need to project accurately to make sure their accounts will cover the payments. For example, if you invoice customers at the start of the month and it is all in your account within ten days, the end of the second or start of the third week might be the best time to start payroll. It is business-dependent, so look at your cashflow and plan accordingly.

7. Build Relationships and Learn To Trust

The relationships that you build around your business are vital for its success. These relationships – with vendors, customers and suppliers – are your corporate lifeblood and ultimately what helps pay the bills. Your customers and contractors are more than an invoice, so treat them well. A meaningful relationship can be incredibly useful if there are any grievances or disputes down the road, it is more likely that they will be settled with decorum and maturity – and you’ll get paid.

Building relationships takes time, though, and there are no shortcuts. There is a degree of due diligence required at your end to make sure anyone you are dealing with is trustworthy. Bringing in any element of risk into your cashflow can be a recipe for disaster, so make sure that suppliers and customers have the ability to respect your payment terms and a relationship of trust can exist.

Maintaining a steady cashflow is one of the keys to success in small business. Once you have some stability and accurate projections of where you are financially, then you have the confidence and backing to advance and grow as an entity. These tips can create a healthy, constant cashflow for your small business.

Subscribe to the Small Business Bonfire Newsletter
And get your free one-page marketing plan template.
Mark Williams
Mark is a director at Horner Downey & Co., UK-based chartered accountants established forty years providing sound advice and value for money services to a wide range of clients.

1 comment

Get RSS Feed
  1. These are all great points! It can be especially difficult if you’re dealing with friends or family who feel like they don’t need pay on time.

Leave a Reply

Your email address will not be published. Required fields are marked *