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How to improve cash flow

Understanding cash flow can be the key factor in the success of your business, but it can end up at the bottom of the to do list. Or maybe you’re in a rapidly growing business where the amount of cash flowing in seems like it takes the pressure off keeping a close eye on your finances. Either way, making sure you’ve got enough cash in the bank to pay your staff and your suppliers not only ensures you avoid credit difficulties, it can reduce your stress levels. Taking a look at your operating expenses, accounts receivable and payable as well as your marketing can ensure your business is long-lived and profitable.

Operating expenses

Forecasting can help you understand the pathway in front of you. First of all, you need to review your accounts. By understanding your income and expenses, where it’s going and where the bottlenecks are, you can make smart decisions for your business. Once you have a system set up, you may be able to see any potential problems before they occur.

Experiencing a period of growth? Growth can be a good thing, but you may need to factor additional upfront costs, such as extra employees or inventory, into your plan. When will these costs be repaid and what happens if the growth falters along the way? Planning well can make all the difference in ensuring that you are prepared for this journey, including additional costs, that spring up along the way.

As part of this overview stage, it’s a good idea to segment your customers and your inventory. Breaking it down can help you better understand exactly where your profit is coming from. High value items that sell sporadically may bring in windfalls, but how long are they sitting on your shelf and what are the costs associated with them? Liquidating slow moving stock can mean freeing up some cash – some money coming in can be better than no money. You may also find customers that were flying under the radar without large purchases that are bringing in a steady revenue stream and should be nurtured.

Accounts receivable

Make sure you have a simple system in place to send invoices out immediately. Keeping this automated or part of the regular routine will mean that you are included in the next pay run of your clients and can improve your cash flow. This is important as it sets you up to pay your suppliers.

Offer your clients a variety of options for payment. There are so many ways to pay these days and for most businesses cash is no longer king. Many clients now are expecting options that allow them to take items home but pay it off over time and there are a lot of services providers that can set this up for your business. Other customers are looking for card-less payments like Alipay, Apple Pay or Google Pay. Do your research to understand any additional costs and weigh these up against likely increase in sales to decide if they’re right for you.

However, don’t act like a bank. Don’t offer long payment terms or allow too many late payments. Doing this takes financial stress off your clients and puts additional cash flow pressures on your business. Insist on prompt payment, when invoices are due.

Picking up the phone and chatting to your customers can help chase up those late payments. Automated emails may save time, but only if they are resulting in payments coming in. Talking with your customers also gives you a chance to connect with them and better understand how else you could provide value to them.

Match your receivables to your payables. Offering your customers 90-day payment terms or knowing that your stock takes two months to sell, while having to pay your creditors each month can create an imbalance in your account. As much as possible, try to align your payments even if it’s the days of the month you receive money being a few days before it flows back out again. This can help reduce some of the scramble to get money into the account before those direct debits come out.

Accounts payable

Speaking of direct debits, set up payments to your debtors so that you always make the most of early-repayment discounts and avoid any late payment charges. This is where your forecasting will help you know when money will be coming in.

Having access to credit can help ease the ebbs and flows of cash flow. One way to ensure you have enough cash on hand for bills as they come due is a revolving credit facility. This can help cover customers who are slow to pay or seasonal ups and downs. At Heartland Bank, we only charge you interest on the funds you use, so it can help smooth out your cash flow. If you’re interested, find out more about our Open for Business Revolving Credit facility here.

Have a look at where your money is really going and trim down unnecessary expenses. Are you getting value from that business network? Is there a cheaper version of the same product that you can get from another company that will do the job just as well? Seeing where you can reduce your expenses will free up cash for those things that will add real value to your business.


Most businesses will need to invest some money in marketing themselves to their potential customers. This can be done in a range of ways – you need to find what is most suitable to your business. For example, just because other businesses are on one social media platform doesn’t mean that it’s the right platform for you. As a business owner, you know your customers best and where to find them. Invest in staying front of mind, letting them know more about your business and finding new potential customers for your business.

When was the last time you reviewed your pricing? Costs may have gone up or efficiencies may have been gained and reduced your costs. Understanding the overall cost to you ensures that the price you are charging covers everything and leaves you with a profit. Also understanding your product or service relative to alternatives within the market can help you find a balance between being seen as cheap and high value. Telling the story of your products and services can help customers understand the value they’re getting, therefore saving them time and money.

Are there additional products or services that you could be providing to your customers? Adding a product line that you can sell alongside existing products can be an easy way to increase the value of each customer to your business. If they’re existing customers, by offering them more you can often provide better service so that they don’t have to go elsewhere. For a barber, this could be hair products on site. For a café, it could be their favourite coffee beans to enjoy at home.

Final note

Running a successful business can be rewarding and set you up for long term success. Understanding and maximising the cash flow of your business will ensure that you achieve this. For more advice on how Heartland Bank’s Open for Business products can help improve your cash flow and reduce your stress, give us a call or apply online today.

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