5 Strategies to Improve Cash Flow

According to recent research (1), cash flow challenges are a barrier to growth for almost one quarter of UK SMEs. 

When it comes to business, a positive, healthy cash flow is critical to survival. Put simply, if you have more cash leaving your business than coming in, you will very quickly struggle to pay bills, which could include staff wages, rent and utilities or supplier invoices. 

Cash flow management becomes even more critical when the economy is uncertain, so we thought there was no time like the present to share The CFO Centre’s top 5 strategies to improve cash flow. 

1. Focus on ALL the cash in your business

When thinking about cash flow, it’s easiest to imagine the money coming in via invoices and going out via bills but there’s a lot more cash that’s less visible. Consider any stock you are holding or legacy expenses which might need reviewing (ongoing and potentially unused subscriptions, memberships and licenses are prime examples). 

Additionally, late invoice payments or poor credit terms (giving your customers too long to pay) will reduce cash flow and effectively mean you’re funding interest-free loans. 

To improve cash flow, our CFOs regularly audit these things, making sure you have a healthy balance within your business that isn’t sucking up cash unnecessarily. 

2. Improve your financial control

This is about knowing exactly what money is coming and going by accurately and regularly forecasting your cash flow. Running a business is never predictable because there are factors both within and outside your control that can affect your performance and your cash flow. So having an experienced CFO who can strengthen your forecasting is critical to ensure you’re able to plan for the inevitable ups and downs. 

Having a clear picture of your cash flow now and in the future gives you certainty and peace of mind to make smarter decisions. To pull together a robust forecast, our CFOs will gain an understanding of your invoicing and expenses, assess margins and pricing, consider future budgets and conduct scenario planning. 

3. Establish effective credit control

It’s the job no one wants to do but having a strong credit control policy and making those responsibilities clear within your organisation is fundamental to being able to manage your cash flow successfully. 

Credit control isn’t just about chasing unpaid invoices. It starts when you first agree to do business with someone, by carrying out credit checks and setting appropriate terms for payment. Late payment costs UK SMEs billions and is one of the greatest risks to business continuity so it’s always a focus for our CFOs. 

It’s also important to ensure credit terms are optimised. This means challenging any clients who, despite having the right terms, aren’t necessarily adhering to them. Letting credit terms slip often results in cash flow shortages so our CFOs play an important role in supporting businesses with this. 

4. Make smarter funding decisions

The choices you make in relation to funding for your business are critical for managing cash flow successfully. 

First, consider whether your cash flow challenges can be resolved internally, for example by freeing up working capital and tightening up on debt collection and inventory management. Once you’re clear on exactly how much funding you need, it’s important to stay focused on cash flow and understand the impact of the different types of borrowing available to you. 

Our CFOs paint a rich picture for our clients to enable them to make the most suitable choice when it comes to funding. 

5. Build stronger relationships

Business is all about relationship building and this is especially important when it comes to cash flow. Having open communication channels makes difficult conversations easier so establishing a strong relationship when times are good will put you in a better position should any of your customers have trouble paying in the future. 

It’s also important to have the right boundaries in place. Many businesses don’t realise that by having over-generous payment terms, they are actually funding an interest-free loan for those who choose to pay late. Having clear terms which are then backed up with a firm credit control procedure will significantly strengthen your business. 

 

By taking these measures to protect your cash flow, you’ll increase the chances of your business not just surviving but thriving.  

Better financial control is one of the most powerful ways our fractional CFOs can help. They bring certainty and peace of mind by giving businesses a clear picture of where their money is and how best to use it to build resilience. 

If you are worried about your cash flow or would like to put our suggested strategies in place, we’d love to talk. Get in touch to book a free discovery call. 

(1) Capify’s Business Confidence Survey 2024