When cash flow is under pressure, the obvious answer can be to try to increase sales.
But more sales do not necessarily mean more cash in the bank.
If customers are taking too long to pay, or costs have gradually increased without being properly reviewed, you can find yourself working hard and generating revenue while still feeling short of cash.
There are two areas worth looking at:
How can you get cash into the business sooner?
And what can you do to reduce or control the cash going out?
Here are some practical places to start.
If customers regularly pay late, it can be easy to accept it as part of doing business.
But every extra week you wait for payment is money that you cannot use elsewhere in the business.
Start by looking at your outstanding invoices and identify:
This can highlight patterns that are easy to miss when you are looking at invoices individually.
If one customer consistently takes 60 or 90 days to pay, for example, that is a cash flow issue worth addressing rather than simply chasing the next overdue invoice.
A simple change to your process can make a difference.
Rather than only contacting customers once payment is late, introduce reminders before and around the payment date.
For example:
Before payment is due: Check that the invoice has been received and there are no queries.
On the due date: Send a polite reminder.
If it becomes overdue: Follow up promptly and ask when payment will be made.
If it remains unpaid: Speak directly to the customer and agree a specific payment date.
The aim isn't to constantly chase customers.
It is to make payment collection a normal part of running the business rather than something you only deal with when cash becomes tight.
Sometimes a customer is not refusing to pay. Something is simply preventing the invoice from being processed.
For example:
If invoices regularly get stuck for these reasons, review the process from the point the work is completed to the point the money reaches your bank account.
Small delays at each stage can add up.
You may have agreed your current payment arrangements years ago.
But your business may have changed since then.
If you are regularly having to fund materials, wages and other costs for weeks before receiving payment, consider whether there are ways to change when you receive the money.
Depending on your business, this could include:
You do not necessarily need to change the arrangement for every customer.
The important thing is to consider whether your current approach leaves you carrying too much of the cost before you receive your money.
Improving cash coming in isn't only about chasing unpaid invoices.
Look at whether there are opportunities to generate or release cash that you might not currently be using.
For example:
If your costs have increased but your prices have stayed the same, you may be doing more work without generating enough return from it.
Large projects can put considerable pressure on cash if you pay the costs of delivering them upfront and only get paid at the end.
If you hold stock that is sitting unused, you may have cash tied up in something that is not currently generating a return.
A customer who pays quickly can have a very different impact on cash flow from one who regularly takes months to pay.
It is worth looking at both how much a customer spends and how quickly they pay.
For some businesses, facilities such as invoice finance may help release cash tied up in unpaid invoices.
But borrowing should not simply be used to cover a cash flow problem that is getting worse. The cost, terms and reason for using the finance all need to be considered.
Getting more money into the business is only half the picture.
The other question is:
Where is the money going?
And this is where businesses can sometimes find savings they were not aware of.
Don't just look at your biggest costs.
Go through your bank statements, expenses and regular payments and ask:
Do we still need this?
Are we getting enough value from it?
Could we get the same thing for less?
Has the cost increased without us noticing?
Is this something we are paying for but barely using?
You may find that there isn't one huge expense causing the problem.
Instead, it is a collection of smaller costs that have gradually built up.
Some expenses are obvious.
Others can be surprisingly easy to overlook.
Check things such as:
A £50 monthly subscription might not seem worth worrying about.
But if you have several unnecessary costs like that, the annual figure can become significant.
Cutting a cost doesn't always mean getting rid of it.
Sometimes you can simply get a better deal.
Speak to suppliers about:
The same applies to regular business contracts.
If you have been with a supplier for several years, don't assume the price you are paying is the best deal available.
When cash is tight, cutting costs can feel like the quickest solution.
But not every cost should be treated equally.
Ask:
Does this cost help us make money, deliver our service or retain customers?
If it does, cutting it could create a bigger problem.
For example, reducing staff may lower your wage bill, but if you then cannot fulfil orders or deliver work on time, the saving may come at a much greater cost.
Likewise, cutting marketing completely may reduce spending today but could affect the flow of new customers in the future.
The aim should not be to spend as little as possible.
It should be to make sure the money you are spending is working hard for the business.
Some costs are difficult to change in the short term.
Others are within your control.
Look at areas such as:
Small operational changes can sometimes release cash without having a major impact on the business.
For example, ordering stock more closely around actual demand could reduce the amount of cash sitting in unused stock.
If you are struggling with the timing of payments, don't automatically wait until a supplier is chasing you.
If you have a good relationship with them, have a conversation early.
Depending on the circumstances, you may be able to agree:
There is no guarantee a supplier will agree, but having the conversation early gives you more opportunity to find a workable arrangement.
Improving cash flow does not always require a major change to the business.
Sometimes it starts with relatively small actions:
Chase an overdue invoice today.
Remove a subscription you no longer use.
Ask a supplier whether they can improve your pricing.
Review a customer who consistently pays late.
Look at whether your larger jobs could be invoiced in stages.
Check whether your prices still reflect what it costs you to deliver the work.
Identify one cost that can be reduced without affecting customers or your ability to operate.
Individually, these changes may not transform your cash position.
But together, they can make a meaningful difference.