Ways To Improve Cash Flow: Practical Strategies For SMEs

​For any Small to Medium-sized Enterprise (SME), the phrase ‘cash is king’ isn't a cliché, it’s the truth and one you probably experience on a daily basis. Profit is what you make, but cash flow is what keeps your doors open, allowing you to pay staff, cover suppliers and invest in growth. A cash flow issue can cripple even a profitable business and cause major bottlenecks if not managed proactively.

If you are looking for ways to improve cash flow, you probably want practical, actionable strategies that can be implemented today. That means working with a partner who can walk you through clear steps to strengthen your financial position and free you from the stress of chasing every penny. Ideally, you want advice that is clear, straightforward and professional, designed to work for you.

Strategy 1: Accelerating Cash Inflow

The fastest way to improve your cash position is to ensure money owed to you lands in your bank account as quickly as possible. This is often the area where small changes yield the biggest results.

Clearer Invoicing And Terms

One of the most effective ways to improve cash flow is to speed up customer payments with clear terms and efficient invoicing. Ambiguity leads to delay. That’s why you need to ensure every invoice is:

• Accurate: Double-check every detail, including VAT registration and bank details, to prevent rejection.
• Detailed: Clearly itemise the work completed and the agreed payment date.
• Swiftly Delivered: Send the invoice immediately upon completion of work or delivery, not at the end of the month.

Your payment terms should be unambiguous (e.g., ‘Payment required within 7 days’) and clearly stated on all documents. It is a good idea to set up systems that automate reminders, saving you time and reducing the awkwardness of chasing late payers.

Deposit Requirements

For larger projects, consider requiring an upfront deposit. This initial payment immediately covers some operational costs and demonstrates the client's commitment, ensuring your business isn't carrying the full financial load of a lengthy project from day one.

Strategy 2: Diligent Management Of Outflow

While getting money in quickly is vital, managing the money that goes out is equally important. This is about efficiency and control, not simply cutting corners.

Controlling Costs And Spending

You must regularly control costs by monitoring expenses and cutting waste. This means reviewing recurring costs for subscriptions, utilities and non-essential travel. You can do this by:

• Reviewing Supplier Terms: Can you negotiate better terms with key suppliers? A 60-day term is often much better for your cash flow than a 30-day term.
• Budget Alignment: Ensure all major purchases align with your financial budgets. Remember, growth is great, but unplanned spending can rapidly derail your cash position. This is sometimes known as ‘growing yourself bust’.

Careful Stock Management

For businesses that hold inventory, poor planning is a significant cash flow issue. You must manage stock carefully to avoid tying up unnecessary cash. Every item sitting on a shelf is capital that could be used elsewhere. Use stock management systems to track turnover rates and only order what you realistically need to cover short-term demand. The goal is to minimise storage costs while avoiding stockouts.

Strategy 3: Strategic Planning And Financial Tools

Even with perfect invoicing, every business faces periods of peak demand or unforeseen delays. Being prepared with strategic tools is the hallmark of a resilient SME.

Using Finance Options Wisely

It’s often necessary to use financing options like overdrafts or invoice factoring if needed. These are tools for growth and bridging gaps, not signs of failure.

• Overdrafts: Provide a flexible cushion for temporary shortfalls.
• Invoice Factoring/Discounting: Allows you to access cash immediately against your outstanding invoices, essentially selling the debt to a third party.

Always try and make sure the financing option is customisable and flexible for your specific situation, ensuring you don’t pay more than necessary for short-term liquidity.

Proactive Forecasting And Risk Spotting

The most sophisticated strategy is proactive planning. The best way to mitigate a cash flow issue is to see it coming weeks or months ahead of time and then start planning accordingly. This is why we strongly recommend you consider working with an accountant to create cash flow forecasts and spot risks early. Forecasting involves mapping out expected inflows and outflows to predict your bank balance at any given point in the future. This powerful tool alerts you to potential deficits, giving you ample time to implement the strategies above, negotiate payment terms, arrange finance or delay non-essential spending.

How We Can Help

At Simply Accounts, we use retrospective accounting to give you a clear picture of your cash flow, helping you identify opportunities, manage challenges, and plan for a profitable, resilient future. Speak to our team today to see how we can support your business.

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