How to Increase Your Cash Flow for Small Businesses

When you undertake a venture like launching your own small business, one of the first things you’ll encounter is the need for regular cash flow. For entrepreneurs, cash flow provides the means to pay salaries to employees, buy supplies and equipment, pay taxes, and fund daily operations. Here are some tips to consider when planning for cash flow challenges.

When planning your cash flow, take a look at the cyclical nature of your inflow (sales) and outflow (expenses and operating costs). If you are paying your vendors Net 30 but you bill customers an average of 90 days before total payment is due, that’s a 60-day difference between cash out and cash in. While you might not be able to complete credit card payments at the point of sale because deliveries or installations are ongoing, you can start to shorten your cash cycle by requiring a down-payment, deposit, or setting up a payment plan.

An established process for processing payments and alerting customers to their financial obligations can help you make the cash flow cycle steadier. Whether you are taking payments online, processing credit card orders onsite, or sending out physical invoices, the more uniform you are about engaging with customers, the better. This helps train customers to make their payments on time. It is important to make early contact with delinquent payers and to have a plan to offer options for payment if a customer is having trouble making their payment, for whatever reason.

An established process for processing payments and alerting customers to their financial obligations can help you make the cash flow cycle steadier. Whether you are taking payments online, processing credit card orders onsite, or sending out physical invoices, the more uniform you are about engaging with customers, the better. This helps train customers to make their payments on time. It is important to make early contact with delinquent payers and to have a plan to offer options for payment if a customer is having trouble making their payment, for whatever reason.

Every small business has a rainy day every now and then, no matter how sound their business plan. It’s better for entrepreneurs to expect the unexpected and set aside a rainy day fund with three to six months of basic operating expenses. In fact, this component of your small business should be annotated in your business plan and cash flow forecast. Another option is to engage your lenders to secure a business credit card or business line of credit to help bridge any gaps in cash flow.