13 ways to improve your cashflow

Cashflow isn’t always as fluid as the word implies. As most SME owners will know, cashflow can be more like a stuttering, sputtering standpipe than a beautiful stream.

The question of how to improve cashflow never really drops off a business owner’s to-do list. There’s always more work to be done or conditions that change the ground beneath your feet.

In the worst-case scenario, cashflow problems can put the future of a business in danger, so it’s a serious topic that deserves proper attention. In this article, we’ve gathered 13 ways you can improve your cashflow.

 

Why is improving cashflow so important?

Improving your cashflow can cut your stress and increase your ability to operate and grow sustainably. It’s a win-win scenario.

By improving your cashflow, you’ll:

• Create and maintain better relationships with suppliers and customers

• Feel ready to respond to unexpected opportunities and challenges

• Build a feeling of confidence and capacity within your business

• Avoid expensive and debilitating debt

• Have room to plan for the future

 

13 ways to improve your business cashflow

Cashflow is a simple way of looking at multiple, complex forces that affect your business. Some originate within your processes and policies; others are a little further outside your control.

The layered nature of cashflow means you have lots of options, with lots of fine margin improvements, to experiment with. You might like to implement several at once or take a more methodical approach of trying one change at a time.

 

1) Conduct a cashflow analysis

It’s hard to make an improvement without a baseline to start from. Understanding your cashflow in full detail – with no assumptions or best guesses – is the very first step to taking control of cashflow.

We’ve written a guide explaining how to create a cashflow forecast, if you need a starting point.

 

2) Optimise invoicing procedures

Invoicing can be a balancing act – if you’re generating dozens of invoices every month, you might be batch-generating them on a set date.

That’s great for the time it saves you, but less helpful for your cashflow. If you’re sending invoices two or three weeks after the date of supply, you’re creating your own cashflow blockage.

If the idea of creating each invoice on the date of supply feels too costly, at least consider adding one or two more invoicing days in a standard month. Moving from one to two (or two to three) can bring some much-needed steadiness to your cashflow.

 

3) Create a discounting strategy

Sometimes, the best thing to do is simply get more money coming in and more stock going out. Forget margins and cost of sale, moving stock can be essential.

Discounting isn’t a cure-all, and it comes with some downsides, but a clear strategy that sets out when you discount, how much you discount and what you hope to achieve can be a useful weapon in your cashflow arsenal.

You’ll see discounting mentioned a few more times in this article, as it can be useful in different scenarios.

 

4) Negotiate better payment terms

Reviewing your payment terms is a twofold way to improve your cashflow:

1. Can your supplier terms be longer?

2. Can your customer terms be shorter?

Even a few days can do a lot to help your cashflow, so it’s worth negotiating for any kind of improvement.

 

5) Implement cost cutting measures

There will always be costs involved in running an SME, but it’s just as true that those costs can accumulate over time without us realising.

Taking the time to closely assess your costs can reveal some interesting surprises.

There might be some obvious savings you can make (e.g. a software subscription that you no longer use), while others can be harder hitting (e.g. making redundancies or changing suppliers).

 

6) Improve inventory management

Inventory management is an imperfect art, as you can never predict the future. The best management processes in the world can’t account for a product going viral or an act of God disrupting supply chains.

Still, there are gains to be made by adjusting your processes around inventory.

• Set minimum stock levels and triggers for replenishment

• Make your stock keeping units more flexible to fulfil demand (e.g. using individual items to fulfil multipack orders)

• Set strict limits for old inventory and how you manage it – through discounting, wholesale or other means

 

7) Increase sales revenue

We appreciate that “sell more” isn’t especially helpful advice, but increasing sales revenue takes more forms than simply increasing sales. There are the simplest ways of growing sales:

• Reach new customers

• Upsell existing customers

• Get old customers to make new purchases

And then the slightly more complex or targeted approaches to increasing sales revenue:

• Increase your prices

• Run a sale or an exclusive discount campaign

• Create new products (including through bundling existing products)

• Be data-driven – e.g. advertising more in regions that have lower-than-average sales

 

8) Enhance collection processes

As you’re reading this, the majority of SMEs in Britain are probably dealing with a late payment.

If you’re in the mire of late payments and regularly find them disrupting your cashflow, it’s time to revisit your collections processes.

1. Organise your customers’ debts by size

2. Identify the worst culprits (for amount owed and regularity of overdue payments)

3. Create individualised strategies for managing each account – from how you communicate to creating payment plans based on their balance, not individual invoices

After addressing your main offenders, you can set in place a late payments process with automated emails and new terms for future contracts.

 

9) Secure short-term financing

If you’re waiting on a large payment to be processed and are staring at a gap in your finances until it’s sorted, you might want to consider a bridging loan (or another type of short-term finance).

A short-term loan is possibly the easiest way to bridge a gap in your cashflow, even if it does come at a cost.

In August 2024, we announced our new bridging finance capability following the acquisition of Tuscan Capital.

 

10) Monitor and adjust pricing strategies

Pricing is rarely fixed, it’s a fluid and fluctuating concept that is tied closely to both your business and the market it operates in.

It’s often said that the best price is the one that people will pay. If you’re under-pricing your products or services, adjusting them to better align with the market (and your customers’ tolerance) can work wonders for your cashflow.

Equally, permanently reducing your prices (rather than discounting) can be a boon to your finances. It always feels uncomfortable, but it can prove worthwhile. A 20% increase in sales after a 15% price cut will earn you more money than keeping prices the same.

 

11) Plan for seasonal variations

Seasonality doesn’t just affect Christmas tree growers; every business gets caught up in the ebbs and flows of the year.

There are obvious cases with product businesses, but even service businesses will attest that August tends to be filled with tumbleweeds while families take their summer holidays.

Accounting for seasonality means leaning on cash reserves when needed, adjusting production and staffing levels and generally ‘making hay while the sun shines’.

 

12) Diversify your income streams

Finance isn’t really a place for universal truths, but the value in diversification is as close as you can get to one.

It doesn’t matter whether it’s your cash-holding bank accounts, investment portfolio or your income streams – diversity is a strength.

None of these suggestions should be taken as advice, but you could investigate:

• Investing in commercial property

• Keeping savings in interest-bearing accounts

• Turning unique capabilities within your business into a spin-off company (e.g. an architectural firm creating a planning consultancy subsidiary)

13) Experiment with new revenue models

Nearly every business can adopt a recurring revenue model of some sort. A subscription guarantees you regular income (for the lifetime of the subscription) and makes it easier for customers to keep using your business.

For product businesses, this can be as simple as installing an app on your website and adjusting your stock keeping units.

For service businesses, you can play around with variations of retainers – either with prepackaged offerings or bespoke agreements for each client.

 

How can Allica help improve your business cashflow?

Allica can be a partner in your efforts to improve cashflow, through several of our features and products:

• Diversify your income by earning a return with our 4.08% AER* (variable) instant access Savings Pot (terms and conditions apply)

• A range of other savings accounts with competitive rates

• Access a bridging loan to fill gaps in your cashflow

• Support and a fresh perspective from your relationship manager

Explore our current account – the Business Rewards Account – for more information.

 

Fine margins add up to a big difference

Working out how to improve your cashflow can feel a bit like standing at the foot of a mountain – it can seem insurmountable.

The secret is that cashflow is more like lots of little hills. Viewed all at once, they’re daunting. Taken one-by-one, carefully analysed and strategically traversed, they’re much more manageable – and achievable – than you first think.

There isn’t one dial to turn or lever to pull that will magically transform your cashflow, but a few tweaks to a few areas in your SME can make a substantial difference. You’ve seen 13 great starting points in this article – now it’s over to you to start experimenting.

And if one of the interventions you want to try is your business banking, then go ahead and fill out our current account application form.

Links were live and information was correct at the time of writing the article.