Struggling with Cash Flow?

Cash flow is one of the biggest concerns of small business owners. Managing cash flow is an important aspect of running a business. Following are some tips to assist you in improving your cash flow:

Bill your clients regularly

By billing more regularly, the cash in-flows are more consistent. Customers see the value of your product or service at the time it is delivered. As time goes by, the perceived value of a product or service is diminished. Customers are more willing to pay for the product or service at the time they have a need for it, and hence are often more willing to accept a higher price.

Implement systems to follow up debtors regularly

Although probably one of the most dreaded tasks of running a business, chasing outstanding debts is one of the most important aspects of maintaining positive cash flow. Procedures should be developed to minimise the number of days debtors remain outstanding. You could offer a discount for early payment, send friendly reminder letters when debts are overdue and follow up with a phone call at a later date.

Make it simple for a customer to pay

By offering alternative methods of payment, such as EFTPOS & Credit Card facilities, accepting direct deposits, as well as cheques and cash, customers are not faced with the difficulties of having to go elsewhere to obtain the funds needed to pay your bill. Further, if a customer offers payment, and you know how much your fee will be, do not turn the offer down. The customer is clearly willing to pay you there and then. If you turn down the payment and ask them to pay at a later date, you are risking the possibility of a delayed payment, or no payment at all.

Seek upfront deposits/retainers

Before commencing large contracts or ongoing service arrangements, seek an upfront deposit. This will assist with your cash flow at the start of the project and also ensure your customer is committed to your product or service.

As the assignment progresses, ensure you invoice progress claims. By invoicing in regular smaller amounts, it is easier for your customer to find the funds to pay your bill, hence improving the cash flow for both you and your customer.

Adopt regular payment arrangements for re-occurring expenses

It is much easier to find $200 a month than $2,400 in a lump sum amount when it comes time to pay for your annual fees. Many suppliers offer “pay by the month” alternatives.  It helps their cash flow as well as yours.

Expenses you could consider paying on a monthly basis are:

  • Insurance
  • Licences & subscription fees
  • Professional fees – accounting, legal & other consulting fees
  • Superannuation
  • Inventory Control

Monitor stock levels carefully. Stock which sits on the shelf for long periods of time is costing you money. This is because you’ve made the cash outlay on the purchase and are waiting for the cash inflow from the sale. Implement an inventory control system where stock items are purchased on an as needed basis to try and minimise the length of time stock is gathering dust on the shelf.

Undertake credit checks

For large sales, seek references from your customers of other suppliers they use to ring and confirm they have a good payment history. If the feedback received is negative, consider asking for payment upfront, or even turning the sale down. A sale with no payment, effectively means no sale at all, and only costs you time and money in chasing the outstanding debt.


Ensure you communicate your payment terms with customers at the time of sale. This way, customers are aware of your expectations for payment.

Also, if you are having difficulties in meeting your supplier payments, speak to them in advance. This will help maintain good supplier relations. Remember, communication is key.

Prepare a cash flow budget

A cash flow budget is vital for monitoring the cash flow of your business. Prepare an estimate of the monthly cash inflows and outflows, and compare the budgeted figures with the actual flow of funds.
A cash flow budget should be prepared on an annual basis, and adjustments should be made according to changes in anticipated cash receipts and payments as they arise throughout the year.

Remember when preparing your budget, a sale doesn’t necessarily equal a cash inflow. You need to allow for the time difference in making the sale and receiving payment. Also, don’t forget to allow for seasonal fluctuations, and the effect of holiday periods such as Christmas.

Without positive cash flow, even the most successful of businesses can fail.