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Union Commercial Capital

7 Small Business Cash Flow Management Tips



Cash flow is the total amount of money that comes in and out of a business, so it's not an exaggeration to describe cash as the lifeblood of your business. A consistent cash flow can help you pay expenses, invest in new opportunities, and help grow your business. Businesses that run out of cash risk bankruptcy, even if they’re profitable on paper. That’s why being proactive with small business cash flow management is so important. These 7 tips can help you improve cash flow for your company.


1). Track Your Net Cash Flow

With cash flow analysis, you track how money comes in and out of your business, with the goal of making sure you have enough on hand to safely cover everything. Examine your inflows, or where you expect money to come in from sales, as well as your outflows, or where you spend on bills, payroll and other expenses. By paying more attention to your cash flow and trying to predict future trends, you can potentially predict issues ahead of time.


2). Collect Receivables Quickly

Improve your cash flow by encouraging payment of receivables. These techniques can help you collect receivables faster:

  • Request deposits from your customers when taking orders

  • Offer discounted prices strategically to move outdated inventory

  • Offer discounts to customers who pay quickly

  • Consider online invoices, as well as provide online payment options


The sooner you can collect project payments, the better it is for your cash flow. Whether it’s moving up the deadline on invoices, asking for some money upfront or adding penalties when clients are late on payments, aim to shorten the time between your business making a sale and actually collecting.


3). Put Your Cash To Work

Keep your cash balances in interest-earning accounts, which are available at most banks. In some cases, you might encounter a minimum balance requirement. Avoid long-term CDs, which lock you in for a specific period of time, as redeeming them early may cost you interest. Either invest in penalty-free CDs or commit that portion of funds you aren't likely to need during the life of the CD.


4). Avoid Overextending on Projects

Making sales and landing new clients is exciting, but it’s only half the work. You also need to make sure the client comes through on payment. That’s why a more controlled growth strategy can be safer for small business cash flow management. If part of a deal means extending credit, ask yourself how your finances would hold up if the client ultimately doesn’t pay. If your business would struggle to absorb the blow, that’s a sign of overextending. Either push for more money upfront, or consider walking away.


5). Cut and Pay Bills Strategically

Extend payables as long as possible and spread your payments. Don't pay all your business bills at the same time. This can drain your cash and potentially jeopardize your relationships with suppliers if you are unable to pay. Instead, review bills, sort according to priority, and stagger payment dates so the most important bills — such as rent and payroll — are paid first. Payments that are less important and more flexible can be made later. However, be sure to pay on time to avoid late charges. Also, check if you can receive discounts for paying any bills early, and then prioritize the ones that qualify.


6). Negotiate Your Payments With Suppliers

Using suppliers with low prices may seem like the best way to improve cash flow, but flexible payment options can be more important than the lowest pricing. Ask your suppliers about their payment terms. You may be able to time your payments with your cash inflows.


7). Build Connections with Lenders

If you’re facing a temporary financial crunch, a small business loan is another possibility for how to increase cash flow. You can get money upfront to cover bills, payroll and other expenses, which you can then pay back when your business catches up on customer payments. Besides outright loans, another option is to set up a line of credit. This would give you a set borrowing limit, which you can borrow up to, pay off and then borrow again. Build connections in the financial community before you need its help, not when you need it, and you may be able to secure a commitment of future loans.

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