As a small business owner, you need cash to meet short-term financial obligations, invest for the future, and avoid unexpected liquidity issues. While drumming up more business may seem like the most obvious way to increase your cash flow, there are actually many ways to bring in cash faster and pay it out slower. In this article, we cover the top 10 ways to improve your business’s cash flow – many of which you can implement immediately.
1. Collect Payments from Customers Faster
Your revenue likely represents a large percentage of your cash inflows each month.
Rather than constantly calling customers to pay their overdue bills, it can be more effective to incentivize customers to pay early by providing discounts or preferred pricing when they pay within a specified time period.
While this may seem like a concession, getting paid faster and cutting down on the time spent chasing late payers is often worth the discount.
Another option is to introduce a penalty on late payments, but make sure this is clearly written on the invoice and communicated in advance.
You may also want to explore pricing structures that encourage upfront payments. For example, if you sell a monthly subscription like a gym membership, offering a heavily discounted annual plan is a good way to get paid in advance.
2. Send Invoices Immediately and Automate Recurring Billing
You can send your customer’s invoice efficiently by leveraging automated systems.
A top-notch invoicing and recurring payments system makes the process simple by automatically sending invoices to clients and collecting payments; this results in less paperwork, fewer late payments, and more predictable cash flow.
3. Conduct Customer Credit Checks
In some situations, it’s a good idea to run a credit check before working with a potential customer to avoid problems with payment collection down the road.
This is especially important in B2B industries when selling to clients that haven’t been in business long or with newer clients that request lengthy credit terms.
4. Negotiate Better Credit Terms with Suppliers
While getting paid faster by customers speeds up your cash inflows, paying your suppliers later slows down your cash outflows – enabling you to keep cash in your business longer.
Paying your suppliers later comes down to negotiating better credit terms with them. Start with your biggest suppliers – the potential benefit is larger and they are more likely to be open to negotiation since you represent a significant piece of their business.
But remember, it’s important to factor in any invoice discounts for early payment in deciding when to pay suppliers.
5. Leverage Business Credit Cards to Extend Payments Times and Earn Cashback
If you’re not using a small business credit card to fund day-to-day expenses, you may be missing out on thousands of dollars in cashback or rewards points.
Business credit cards like American Express can also help pay business expenses while providing up to 54 additional days until payment is due, which can be great if you know you’ll need to be making a major purchase in the near future.
6. Reduce Your Credit Card Processing Fees
Did you know that the average credit card processing fee is between 1.5% to 3.5%?
Fortunately, Gravity Payments can help you keep more of every dollar with our transparent pricing system and support for all major credit cards.
7. Lease Rather Than Buy
Leasing assets like equipment and vehicles is an excellent way to smooth out your cash flow since you’ll be making payments over time instead of a lump sum purchase.
In addition, leasing may offer tax benefits for your small business – you should talk to your accountant if you want to learn about the possibilities.
8. Reduce Inventory
Inventory can place a huge drag on the cash flow of your small business.
For companies that sell trendy goods, old inventory can easily accumulate and eat into their cash position.
In any case, it’s often a good idea to get rid of old inventory – even if at a deep discount – to recoup the trapped cash and invest it in other parts of your business.
9. Forecast Future Cash Flow Requirements
Another way to improve cash flow is creating a financial forecast to determine your business’s expected future cash flow position. You can use the data to inform decisions moving forward.
This is often easier than you would think, as your business may already have a sales forecast and annual budget. But you’ll need to adjust these figures to reflect when cash is actually received or paid out.
You should also review your business’s historical cash flow to understand where cash is being generated from, be it operating, investing, or financing activities.
10. Bridge Short-Term Funding Gaps with Flexible Loans from Gravity Capital
If you’ve followed our first nine tips to improve your small business cash flow and still have a funding gap, consider applying for a flexible merchant loan from Gravity Capital.
At Gravity Payments, we understand the cash flow challenges that small business owners face and how difficult it can be to obtain short-term financing from traditional lenders.
So, we launched Gravity Capital to help small businesses meet their cash flow requirements with quick, easy, and flexible funding solutions.
Apply today to see how much your business qualifies for and to learn more about our adjustable repayment timelines.