4 Tips for Improving Small Business Cash Flow


You might enjoy a banner month, sales-wise, only to realize that a few frustrating clients haven’t paid up and that your outgoing expenses – inventory, loan interest and an uptick in accounts payable – have throttled your cash flow. It’s frustrating. You would hope that great sales were a bellwether of small business success, but unfortunately, it isn’t that easy. A truer measure of a small business’ health is the state of its cash flow.

To that end, this article will discuss a few ways that your business can ensure it remains the right amount of cash flow positive. These may not be the only four steps your small business can take, but they rank among the most effective.

Work in Incentives, Penalties and/or Deposits

The end goal, really, with accounts receivable, is getting paid on time – that’s the bottom line. If it requires incentivizing, so be it. Rather than chase down a client who is late with a payment, why not incentivize early payment with a small discount. Conversely, you could penalize late payments, although here you run the risk of turning your debtor delinquent, which is certainly something your cash flow statement wouldn’t appreciate. Finally, you could create a deposit requirement, which hedges against loss.

Lease Your Fleet and Equipment

Traditional financing for vehicles and equipment is quite a bit more expensive than leasing. And although with leasing you may not own the vehicle, it’s more than worth it to maintain a healthier operating budget and cash flow positivity. Ownership, when all is said and done, is not as important as growing a healthy small business. And prices really are more affordable: check this out – a list of commercial vehicles available to lease for a fraction of their “sticker” price or MSRP.

Sync Payables and Receivables

Too obvious to include on this list – not at all! It’s important to manage your payables receivables, both by tracking them and making efforts to align the terms of payment in each. For instance, if you need to pay vendors within the month, but allow clients a much more lenient timeline, your cash flow suffers. You can, of course, leverage perks in your payables against your receivables; while you might require a deposit from clients, try to limit the deposits your business has to pay to vendors by currying favour.

Sell Any Unnecessary Equipment

Finally, when you’re in the red – or at the very least cash negative – every unnecessary asset becomes an opportunity to achieve balance. If you have an old copier collecting dust, boxes of old inventory that you don’t think will move well, or even a portion of your real estate not being occupied… whatever is obsolete and has the capacity to bring in money should be sold.

Cash flow statements are an ongoing game of tug-of-war. Hopefully, next time you have a terrific month for sales, you can employ these four tips as well and win that game of tug-of-war once and for all!