How to Increase Cash Flow in a Small Business

Running a small business is equal parts rewarding and challenging. Operating your own business requires you to learn hundreds of new skills, but managing cash flow is one of the trickiest. Maintaining a steady cash flow is critical to your success. But it’s also a fine balancing act, and many owners struggle to ensure they have enough money flowing through the business. To help you manage your money more effectively, we are going to go over 6 things you can do to increase cash flow in a small business.

1. Request a Deposit on Goods and Services

Many small business owners wait until the work is complete to issue an invoice. While that’s a simple way to approach a transaction, it can mean that you’re left waiting weeks (or even months) for each cash injection. A simple way around this issue is to ask for an upfront deposit.

Requesting a deposit before providing goods and services helps by:

• Increasing the regularity of your cash flow
• Providing cash that can be used to purchase supplies
• Providing cash that can be used elsewhere in the business
• Asking for deposits also reduces the size of the final invoice. If you’re concerned that a client will experience bill shock when the invoice arrives, allowing them to pay some of the money up front can greatly reduce the risk.
  
  

2. Incentivise Customers to Pay their Bills Early

One of the best ways to stay on top of your cash flow is to collect receivables before your payables are due. That’s a challenge, especially since you aren’t in control of how long it takes a customer to pay their invoice.

Whenever possible, payments from customers should be collected before recurring expenses (such as rent or payments to suppliers) are due. You can do this by planning invoice due dates around your payables. Alternatively, you can incentivise customers to pay sooner by offering small discounts for early payments. While you should make sure the discount doesn’t affect your margins, a small incentive could mean that you aren't constantly waiting for last minute payments.

3. Send Invoices Immediately

As a business owner you’re responsible for hundreds of little details. Tasks like invoicing often fall off your to-do list. But, every day that you wait to issue an invoice is an extra day you’ll have to wait for payment.

Make a habit of issuing invoices immediately after the work is complete. A good way to do this is to present the finished product to the customer, check that they’re happy with the work, and then follow up with a digital invoice right away. If you struggle to find time for that sort of work, accounting software like MYOB and Xero can automate the process.

4. Update Your Pricing

Australia’s inflation rate is at a 30-year high. As your expenses go up, your prices need to follow suit. While it can be tempting to maintain your old pricing, you should regularly assess and increase your rates to ensure your business doesn’t fall behind.

We recommend reassessing your rates twice per year. This ensures you are always on top of your own expenses, and it means you can make small, incremental increases, rather than one big increase at the end of the financial year.

5. Perform a Cash Flow Analysis

As your business grows it’s important to build a firm understanding of where your money goes. The first step in performing a cash flow analysis is to make sure you understand each major cash flow entry:

• Accounts and balances
• Income and interest earned
• Payments to suppliers
• Receipts from customers
• Taxes paid
• Salaries, wages and entitlements

Getting on top of this information means you know exactly what your money is doing. It also allows you to project future cash flow and identify areas where money is being wasted. 

6. Work with a Debt Collection Agency

Sooner or later your business will be left holding a bad debt. Whether the customer is unable or unwilling to pay, you’re the one that ends up footing the bill. Working with a professional debt collection agency allows you to mitigate your losses, recover the money you’re owed and protect important client relationships.

You don’t need to wait until an invoice goes unpaid either. You can build a relationship with a collections agency at any time. Professional debt collectors can track down outstanding invoices, but they may also be able to provide useful tips on improving your processes and managing the risk of incurring bad debts. Plus, if that relationship is already in place, you’ll be able to recover debts much faster and ensure your cash flow is uninterrupted.

Manage Your Cash Flow More Effectively with Dynamic Commercial Collections

Bad debts are a simple fact of doing business, but they can have a serious impact on your bottom line. If you find yourself with clients who can’t or won’t pay, get in touch with the team from Dynamic Commercial Collections.

Dynamic Commercial Collections provides debt collection services throughout Australia. We take great pride in our ethical approach to collections which is designed to recover more of your money while protecting client relationships. Our experts work with businesses of all sizes. From sole traders through to large-scale corporations, we can help you recover debts, track debtors and manage your cash flow more effectively. Contact us online at any time to book a consultation with our specialists!