cash flow

9 Proven Ways to Improve Cash Flow

Aine Hendron
1 Jul 2021

Managing cash flow effectively is a sure way to keep your business in operation. Positive cash flow is when businesses have more money coming in than out. They are able to keep the organisation afloat and earn some profit. 

If your business is experiencing negative cash flow, there is more money going out, than in. This isn’t sustainable in the long term, and can eventually lead to debt or closure of the business. 

Businesses of all sizes should learn how to manage their cash flow if they have plans of expansion or if they want to increase their overall revenue and profitability. 

Proving that your business is being run economically will appeal to investors and enable you to realistically plan and budget for expansion, renovation, or any other future project. 

Here are 9 initiatives you can implement to improve cash flow in your business. 

1.Incentivise pre-payment

It may seem obvious, but receiving payments in advance means you have extra money readily available when necessary. Offer a realistic discount or an Early Bird offer to customers who pay in advance for products or services. This incentive will appeal to customers while allowing you to increase your money reserves.

Offering multiple ways to pay will also add to the convenience of the consumer journey with your product. Allow customers to pay online using order and pay services, user-orientated payment processing with card or Apple/Android/Google Pay, electronic invoicing or cash. If you provide multiple payment options, customers may be more inclined to pay quickly, using a method that suits them. 

2.Request deposits and installments

Deposits work particularly well for businesses that offer services customers typically pay for after the work is completed. For example, a builder completing a large task may want a deposit to cover the cost of the materials they will need for the job. 

If your service offers long-term contracts with clients, requesting payment in installments will protect your finances, and increase cash flow. Waiting until the service has been fully completed will mean that you have to temporarily cover the cost of materials, equipment, and salaries of those who are completing the work. Taking installments or an upfront deposit will provide more flexibility to take on jobs for other clients. 

3.Get paid on time

If you can’t get paid early, you’ll at least want to get paid on time. The best way to do this is to send invoices immediately. 

One way to ensure speedy payment is to charge an enforceable late payment fee after a certain number of days. For example, if a customer hasn’t paid by the 30-day deadline, they’ll be charged interest or a fixed fee. Make sure that this penalty is clear upon sending the invoice, and remain realistic about the fee amount. An unreasonably high late fee may carry consequences for your business’s reputation. Sending follow-up reminders to customers that their invoice is due soon will probably be gladly received by those who are at risk of being served a penalty for late payment.

For a softer approach, you could consider incentivizing early payments. A small discount for those who pay within the first week of receiving the invoice could improve cash flow. This works to both your and the customer’s advantage. 

Finding accountancy software that sends invoices and payment reminders will smoothen the process. Epos Now’s software is compatible with Quickbooks and Sage. These programs automatically create invoices with the data on your point of sale (POS) software, meaning that you don’t have to worry about forgetting items, or laboriously calculate what’s owed. These invoices are amendable, so you can edit pricing to reflect customer discounts. 

4.Optimise your inventory

Stock takes should be carried out regularly to ensure that your actual inventory levels are in line with your predictions. We highly recommend using a POS system that provides live stock reports, such as Epos Now for retail, and hospitality. These systems not only update in real-time, and automatically refresh once an item is sold, but provide detailed reports on how well specific items are selling. You’ll be notified when something is selling well or taking up space on the shelf.

This will allow you to create better informed promotional sales for items, perhaps pushing good quality products that are underperforming, or focus more on best-sellers.

You should also consider liquidating old inventory which isn’t selling well. It can be frustrating selling products for less than you bought them for, and disheartening selling products to other retailers for cost price when you expected them to generate good revenue. However, breaking even is better than nothing. In future, use your Epos Now’s analyses to check for seasonal trends and selling reports on items to avoid buying more than you need, and thus reducing negative cash flow.

5.Cut unnecessary expenses

On the topic of reducing spending on unprofitable inventory, you should examine your overall expenditure and figure out if there is room for cuts. If all purchases and expenses are absolutely necessary, are there cheaper alternatives available?

Making cuts can seem challenging. It’s understandable that as a business, you want to provide your customers with the best quality experience with their money. However, amenities and free extras may be draining your resources. 

If you remain loyal to your wholesaler, try to arrange bundle discounts on certain products, or shop around to find a cheaper alternative, and ask if they can price match. If not, finding a more affordable option will allow you to reduce unnecessary spending and improve cash flow. 

6.Offer additional services

If you have a lot of equipment, or additional space, you may want to consider leasing out your facilities to other businesses. Ghost kitchens are an example of how this model works. Ghost kitchens are restaurants that offer a delivery-only service, and so can operate from any suitable kitchen. Many hotels, restaurants, and even fast-food chains will rent sections of their kitchens, or pieces of their equipment, to ghost restaurants for extra profit. 

Hotels could rent out function rooms for meetings or as wedding venues for extra profit, cafés might offer catering services for events, or retailers can lease their products for an additional fee. Expanding your market by offering additional services will not only improve sales and cash flow, but will set you apart from your competitors.

You could offer these services as part of a bundle, or simply recommend them to customers who don’t need your primary service. Recommend and advertise your additional services across as many platforms as possible in order to maximise their visibility. 

7.Improve customer retention

Not only is it cheaper to retain customers than onboard new ones, results also show that loyal customers tend to spend more, and generate higher profits for businesses. Since 70% of customers base their buying decisions on how they are treated, it’s important to keep your existing customers happy

A good way to make sure that customers stay loyal and continue supporting your business is to offer loyalty discounts. 

These discounts don’t have to be extraordinarily expensive. You might choose to offer a free or discounted service/product once a customer has spent a certain amount of money - at least enough to cover the price of what you’re giving away. For example, you could offer one free item after your 10th purchase, or 15% off when you buy 5 or more items - something that encourages the customer to spend more and incentivises them to come back. 

‘Refer a friend’ schemes can also be highly successful. Word of mouth is thought to be the most powerful marketing tool worldwide, (even more impactful than paid ads) [1]. 

8.Increase Pricing

To fully maximise cash flow, you might want to consider increasing your prices. Use a pricing strategy that strikes the perfect balance between charging enough to produce a healthy profit margin, while remaining competitive. 

Some things to ask yourself when pricing your services:

  • What are my competitors charging?
  • Have the prices for equipment or inventory increased?
  • How much manpower does my inventory assembly or services require?
  • Do my prices compensate for the time put into my creating my products?
  • Are my prices too low? Do my products come off as cheap or valuable? [2]

Your prices should reflect the value of your services, not just cover the very base cost. Customers are willing to pay more for something if they are certain of its quality, and there is a guarantee of better customer service along[3]. Undervaluing your products is doing yourself and your employees a disservice, and is more likely to lead to negative cash flow in the long run. 

9.Invest in POS software

It takes a combination of efficient operations and smart business practices to achieve positive cash flow. Inc. reminds us of the popular business rule: work on your business, not in it [4]. They also add that when you get bogged down in simple details that your employees could be working on, you are not being an effective leader. 

Better yet, you can free up your employees and allow your POS software to complete these simple tasks. 

A multifaceted POS system, designed specifically for your industry can bring a fantastic return on investment. Choose software that takes all your business needs into consideration:

  • Marketing integrations that send personalised messages to customers
  • Inventory management in real-time, from any location, on multiple devices
  • Reports on performance, peak sales times, and sales patterns
  • Employee scheduling and payroll control
  • Create and send invoices and follow-ups 
  • 24/7, 365 customer service support

Get in touch if you’re ready to move into the black and increase your business’s profitability and cash flow today.