How to Improve Small Business Cash Flow

Author: Jesse Santana, Commercial Loan Officer 02/18/2022

If you’re a business owner, you’ve likely heard this once or twice. Cash flow is key. But keeping your business cash flow consistent can be tough while dealing with day-to-day operations and collecting receivables. To improve your business cash flow, consider following these tips.

Collect Receivables

When a company sells or performs a service, and bills for it, it creates a receivable. If this service was paid on credit, it’s credit based. In most cases, as a business owner, you want to be collecting receivables as quickly as possible. The quicker the cash comes in, the quicker you can use it.

For example, let’s say there’s an accounting firm that meets with a client. After the meeting, they perform services. They can then choose to send a bill to the customer or have the customer pay in cash. If they send a bill, the client will receive an invoice within a certain number of days. This is something the accounting firm could improve. They could bill for the invoice right away or consider sending the bill, electronically, to improve their collection of the receivables.

When you sell a product or service, that cash associated with that transaction goes out of your company. You want to receive it back, quickly. One way to speed up collections on receivables is to consider offering an incentive or discount to customers. As a business owner, it’s important to think about how long you are giving customers to pay for the service? 30 days? 10 days? Giving people incentives to pay you back quicker may help your business cash flow.

Be Disciplined in Your Credit Card Use

Using a business credit card for purchases can benefit your business, but don’t overdo it. This can be key. If you are in the market for a business credit card, one that offers cash back rewards may be beneficial. Be disciplined, don’t overspend, and avoid carrying over a balance from month to month. Keep an eye on your spending habits. That’s a great way to determine if you’re being smart with your money.

Secure Loans

Borrowing from a bank allows you to hold on to cash while investing money into your company. For example, let’s say you have a business and $100,000 in cash. There is a piece of equipment you want to purchase that costs $100,000. You could pay it off in cash and have no debt. But now, you’re out $100,000 from your cash balance. The liquidity is gone. Now, you have to replenish.

The alternative is to get a loan. With a loan, the bank will ask you to put a percentage down. After that down payment, you will still have the difference left over that you can use in your operation.

Consider Leasing Equipment or Real Estate Rather Than Buying

Many times, leasing can be beneficial to your business cash flow. In most situations, the cash that you pay with a lease will be less than if you’re purchasing. The cost is lower, which will have an impact on your bottom line, since you won’t have as large of a cash outlay.

Obtain a Business Line of Credit

Especially when a company is growing, it’s nice to have a line of credit available at a time when there could be a potential cash strain. If you’ve sold a product, having a line of credit can also help bridge the gap while you’re waiting for receivables. In cases where a company is experiencing growth, it’s a great time to have a line of credit. It’s a great way to pay operating expenses until you can collect receivables.

Provide Electronic Payment Options     

To give customers a quicker way to pay their bills, automate your receivables process with electronic payment options. It’s important to seek out your bank’s treasury management team to obtain information that can help you achieve this. Instead of waiting for your customers to pay you, you can pull money from their account through electronic payments. Giving people multiple payment options can speed up your receivables collection and improve your cash flow.

Examine, Monitor, and Compare Spending Habits

You can say you’re spending too much, but if you’re not monitoring it, you can’t fix the problem. Monitor your spending by pulling your reports. Many business owners can pull financial reports regularly from their accounting system. It’s also important to compare spending from year to year to see if you’re meeting your financial goals.

Ultimately, to improve your business cash flow, reach out to your banker. PlainsCapital Bank has several resources to help businesses succeed, including commercial and small business lenders as well as treasury management and merchant services representatives who can lead you in the right direction. Outside of the bank, your CPA or accountant can also provide useful advice. Using these resources can equip you with the tools you need to better improve your business cash flow.

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