Business Cash Flow Management in 9 Easy Steps

Cash flow is the lifeblood of any business and key to its ongoing success. However, managing it effectively is also one of the biggest challenges small-to-medium enterprise (SME) owners face. Research conducted by online accounting leader Xero revealed that only 49% of Australian small business owners enjoyed positive cash flow in February 2020. Although business cash flow management is a common problem for entrepreneurs everywhere, there are reliable solutions that can address cash flow problems for greater peace of mind. Here are 9 easy steps to help you improve your cash flow and set a solid foundation for future success:

The 9 steps to easy business cash flow management

1. Get your accounts in order for better cash flow management

The first step to effective business cash flow management is to get your books in order, so you know exactly how much money is coming into your business, versus how much money is going out. Powerful, cloud-based online accounting programs such as Xero make the task of tracking your income and expenses super easy, with this data available at your fingertips from anywhere. Yet research shows up to 45% of Australian small businesses don’t use any accounting software to maintain accurate, up-to-date financial records – a missed opportunity!

2. Create a cash flow statement

With your books in order, the next step is to create a cash flow statement – a simple document for cash flow analysis that shows the level of funds left in your business’s bank account at the end of every month.

If more money came into your account than went out, this is called positive cash flow, a good sign your business can meet its current operating expenses without needing to take on additional debt. While negative cash flow, more money leaving your account than entering, means a closer look at your spending habits and that a sales strategy is needed to correct course before this becomes a bigger problem.

3. Implement credit policies and procedures

One of the biggest (and most annoying) factors hindering a business’s cash flow are late payments from customers. We’ve all been there before, by forgetting to pay an invoice on time amidst our busy lives, or occasionally not receiving one at all.

In fact, research by Moula revealed that 65% of Australian SME customers don’t pay their invoices on time, so this is quite a common problem. To address this issue and avoid having to regularly chase up money you’re owed, implementing credit policies and procedures can make a big difference.

This includes everything from requiring a credit application from every business you work with that requests payment terms, checking credit references, invoicing quickly and following up immediately when payments are late.

4. Know your average debtor days

A key tip for helping you get paid on time and therefore achieving effective business cash flow management is to know your average debtor days – the typical number of days it takes your customers to pay you after you send them an invoice. Once you know this important figure, you can then track the effectiveness of the steps you’re taking to get money flowing into your business sooner.

5. Make it easy for customers to pay you

One of the easiest ways to improve your business’s cash flow is to make it as simple as possible for customers to pay you in the first place. This can be achieved by using a clear and straightforward invoice template that shows all the ways you accept payments – such as EFT, credit cards or other facilities. Also ensure the amounts on your invoice are correct, as well as the address and name of the relevant person. Include a purchase order (PO) number if one was provided and consider becoming a merchant with Moula Pay for easy, instant payment.

6. Offer a small discount for early payment

A popular incentive that’s been consistently proven over time is to offer your customers a small discount for early payment. The amount is entirely up to you and dependent on your financial capacity. For example, a 2% discount if an invoice is paid within 10 days could be the carrot that gives your funds a welcome boost.

7. Ask for extended payment terms from suppliers

While the previous four steps have covered how you can get customers to pay you faster, another effective business cash flow management strategy is to ask your suppliers if they’re willing to extend their own payment terms. For example, if a supplier currently requires payment within 15 days of issuing an invoice, asking them politely if they can extend their terms to 30 days means you’ll have more cash in the bank to cover your own expenses in the meantime. The more you purchase from a supplier, the greater your bargaining power will be.

8. Negotiate for lower prices on purchases

All the tips so far have focused on maintaining and improving your business’s income. On the other side of the cash flow equation are your expenses. One effective way to cut these are by asking your suppliers for discounts on products and services you regularly purchase. Even small discounts can add up over time and have a big, positive impact on your overall financial situation.

9. Get short-term business finance to improve cash flow management

Finally, there’s always the option of accessing short-term finance in the form of a business loan, to immediately boost your business’s cash flow and expand your entrepreneurial endeavours. Online business lenders like Moula have dramatically simplified the application process, so the money can hit your account faster and you can seize the opportunities offered by an uncertain and ever-changing economy as soon as they arise. Your blog post content here…

For more information on cash flow management check out our blog on 5 Tips to Improve Your Cashflow.