Positive cash flow is the lifeblood of every business and essential if you want your business to run as smoothly as possible. With spare funds available, you can cover business running costs without difficulty and fund growth or investment opportunities.
However, poor cash flow can disrupt business operations and prevent you from fulfilling orders. And if your business can’t fulfill orders and carry on as normal, you run the risk of decline.
Sometimes though, cash flow problems are inevitable. Slow paying customers, large order costs or unexpected growth can all cause cash shortages. So, to help you avoid stumbling into financial difficulty, here are five smart ways to improve cash flow in your business.
1: Cut Unnecessary Expenses
None of us wants to admit we’re paying for things we don’t need. But the reality is, most businesses have at least a few unnecessary expenses.
Even if you don’t think you’re paying for anything you don’t need, it’s worth taking a look at your outgoings. Is there any software or equipment you’re paying for but don’t use — or are there cheaper alternatives to your current equipment? If you’re a physical business, could you relocate to somewhere with more affordable rent?
You might be able to save money by cutting back on equipment, rent, and even staffing costs. Cutting costs means your profits will go further and you’re more likely to have a positive cash flow.
2: Apply For Business Finance
Business finance may be the most effective way to address cash flow problems. Extra funds can be used to cover business running costs and fund more orders. Alternative finance providers, in particular, know time is of the essence when it comes to cash flow issues — so they offer fast access to funds.
A business loan or finance isn’t just about tiding you over — it can also open up growth and investment possibilities. By using business finance to grow your business, you won’t just solve current financial struggles. You can prevent future cash flow issues and open new paths to growth.
3: Increase Prices
Often small and medium businesses make the mistake of setting prices and forgetting to review them regularly. But sometimes it pays to experiment with different pricing strategies. Increasing how much you charge for your products will increase your profits — as long as customers continue to buy your products.
Market prices are constantly fluctuating. So, occasionally, you should check what your competitors are charging for similar products or services. You could also adjust prices and see how your customers respond. You’ll soon get a feel for how much customers are willing to pay.
You might also want to adjust your prices if your business running costs have increased. If your prices are too low to outweigh the cost of production, this will harm your cash flow.
4: Boost Your Marketing Efforts
Cash flow problems can be a result of a drop in demand. You might have stock ready to fly off the shelves, or services available to be delivered, but no customers to sell to. This situation presents financial problems when you’ve already paid out for stock, but haven’t made the sales to cover costs. So one way to drive customers to your business is to boost your marketing efforts.
An effective marketing campaign will spread the word about your business, increasing brand awareness and bringing a flood of sales. And with more sales, you’ll have more funds to inject into your business.
5: Encourage Customers To Pay On Time
Slow paying customers can cause cash flow issues. If you’ve covered the costs of delivering a product — but haven’t received payment yet — this can cause a cash shortage.
One way to increase the likelihood of customers paying quickly is to send out invoices as soon as possible. The faster you send invoices out, the sooner your customers can pay you. And with customers who are prone to taking a long time to pay, this will hopefully limit the delay.
Once you’ve sent out an invoice, do your best to encourage customers to pay on time. Send follow up reminders if they don’t pay right away. Your customers may have an inbox or letterbox full of invoices to complete. Following up after an invoice gives them a gentle reminder that they haven’t yet settled the payment. Offering incentives, such as a discount for early payment, or charging a late fee, can also persuade customers to pay sooner rather than later.
Another way to persuade customers to pay on time is to work with a third party invoice financing company. Finance providers can give you a cash advance on unpaid invoices, limiting the financial strain of late invoices.
