Boosting Business Cash Flow: Strategies for Steady Income

How to optimize your business cash flow

You can see by now how many businesses move around cash flow, no matter how profitable they may be. 

To help you optimize your business's cash flow, follow these expert pointers:

Decide payment terms early on.

Getting paid on time is important. Otherwise, you have the risk of seeing your cash flow dry up. One way to sidestep any issues is by setting clear payment expectations with your clients—both in a contract and verbally.

A strategy to incentivize customers is to offer them payment discounts when they pay early. For example, knock 2% off the payment balance or apply that discount to a future payment. Subsequently, you can penalize clients for late payments by charging fees and interest.

Whichever approach you take, just be sure to detail your payment terms in the client contract so the penalties don't surprise you.

Make it easier to pay

While most customers intend to pay you, tough payment processes can get in the way and prevent even some of the timeliest customers from pulling out their wallets until the last minute. The lesson to be learned? Make your process as simple and convenient as possible. For example, reduce the number of clicks to make a payment. Or offer multiple ways to pay. The easier your process, the faster you'll likely see the cash roll in on time.

Wave, for instance, allows businesses to collect and receive online payments from customers in as little as two days directly from an invoice. Allowing your customers to make payments via credit card and bank transfers is convenient for them and increases your likelihood of being paid on time by 15%. Learn more from the video below!

Manage your inventory well.

One nightmare scenario for business owners is having hard-earned dollars tied up in idle or wasted inventory. For instance, if you spend $500 on lettuce as a restaurateur, it'd be a shame to use only $150 worth and see the remaining $350 of greens spoil and go straight to the trash. That money would've worked harder for you someplace else. For instance, Wave's business accounting software makes monitoring your inventory costs, recording purchased and sold inventory, and accessing reports simple. 

With these tools, it's easier to manage your inventory levels and purchase products at the right time and quantity—just when you need them.

Have a well-rounded marketing approach.

If you're targeting customers through only one marketing channel—print advertising—you're limiting your reach. Instead, embrace an approach that attracts customers through multiple mediums, like print ads, social media marketing, and a Google AdWords campaign.

But steady is only one part of the equation. Suppose you want your business to operate like a well-oiled machine, your cash needs to come in steadily and quickly. So, next, we'll tackle optimizing the speed of your business cash flow.

How to get faster business cash flow

It happens. Your records show a profit of $20,000, but all you have in your business account is $3,000, which might tide you over until the following week. But when this scenario repeats itself regularly with no solution, you're eye-to-eye with a major cash flow issue.

The good news is you're not alone. Businesses everywhere face the same struggle every day. As mentioned, profits mean little if you need more cash to run daily operations. That's why speed is key when it comes to cash flow.

Unfortunately, many small business owners sacrifice speed for more cash, a mistake to avoid.

Understanding the importance of speed over dollars

Say a customer purchases for $1,000. You have two choices:

• Let them pay by card and get the full balance minus card processing fees within seven days or settle on a payment plan.
• Avoid the fees.
• Get paid in 38 days.

Which do you choose?

Here's why: receiving cash every seven to 10 days and having it leave every 30 days keeps your business looking pretty, cashflow wise. Cash velocity is crucial in business. To ensure your business cash flow comes in quickly, here are some best practices to follow:

Invoice your customers right away.

Ultimately, the sooner you invoice, the sooner you expect to get paid. When prompt with invoicing, it sets the precedence for your customers, showing them you're serious about collecting payments on time and keeping organized about when and how much they owe you.

Charge enough for your services or products.

Understandably, you want to be affordable for your clients but not at the risk of short-changing yourself. Remember, just because something feels pricey doesn't mean it will to your customer. It's all about how the customer perceives the value and benefit of what you're offering.

Bottom line, feel free to charge your worth, especially if you're selling a large volume, collecting payments and time, and still need help with cash. It's a strong indicator you need to charge more. 

Re-evaluate operating expenses

If your price point is on target, you're collecting on time, and you're seeing a high sales volume but still having trouble making ends meet, it's probably time to revisit your most routine costs: your daily operating expenses. More than likely, you're spending on things you could do without. Taking time to re-evaluate expenses this way can help you save dollars, reintroducing more cash flow into your business.

To start, analyze a few months' worth of bills to figure out which expenditures are the heaviest financial burden on your business:

• Are your utilities too high?
• Are you paying for software you don't use regularly?
• Are employee salaries eating at a big chunk of your cash flow?

If so, consider energy-efficient fixtures to lower utility bills. Or consider reducing your employer headcount. One or a combination of the two could curb costs simultaneously on payroll and extra energy consumption by non-essential staff.

Liquidate old inventory

A stale inventory doesn't bode well for you or your business. This means you should only order what you need when you need it. But if it's too late for that, then it's time you take action to release trapped cash. For instance, you could knock down prices, offer special financing options, or extend a bonus to salespeople who help sell idle inventory.

Pay vendors at the right time.

As a business owner, you'll be juggling multiple payments at once. Suppliers, your landlord, and credit card companies will account for a chunk of that business cash flow. Although it might be tempting to pay everyone off as soon as you get a large payment in cash position-wise, there are better ideas than that.

Time your payments strategically to ensure you're not draining your account simultaneously. Pay too soon, and you may miss out on using that cash flow in more lucrative ways, like taking advantage of a steep discount temporarily offered by a particular supplier.

The equipment you use helps determine what you charge. I also looked at my experience within the industry. I'm intermediate, so I can charge more than someone just starting. You have to be honest about your experience and how much you've invested.

- Tatiyanna Williams-Britton, TruCreates

Capitalization and outside sources of cash

Inevitably, you'll run into circumstances where you'll need to rely on cash. For instance, you may decide to expand your business or experience a lull in business when a cash reserve could help you breathe easier. However many entrepreneurs often need to set more capital aside to help them through scenarios like these.

Fortunately, you have several options to get the cash you need, whether you've been in business for some time or are just starting:

Crowdfunding

It is innovative if you have a business idea that helps solve a problem. Essentially, you ideally set a fundraising goal and raise funds from people supporting your idea.

Remember that some of these sites have strict stipulations, like only giving you the full amount of donations raised if you meet your complete funding goal. So, make sure you go through their guidelines and terms carefully.

Consider cash-back credit cards.

Credit cards are a nicer way to create float and build extra credit for your small business. 

As long as you're a responsible consumer and prompt about making payments on time and in full, small business rewards cards and credit cards can be a great win-win for you and your business's cash flow.

Apply for a loan.

Loans are the most natural option if you need additional cash. Fortunately, there are many types you can choose from based on your business needs, including:

• Invoice factoring: With this option, a third party, called a factor, buys outstanding invoices from you at a discount. As these invoices come due, the factor collects on them. In the meantime, you walk away with a stash of cash that you can use however you want. This is a more instantaneous way for businesses to fulfill cash flow needs.