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6 tips to improve your short-term cash flow

Business Finance

6 tips to improve your short-term cash flow

Updated: 19 October 2021

Maintaining positive cash flow has always been one of the biggest challenges faced by small business owners. Now, with current developments causing increased costs and shortages of stock and materials, steady cash flow is more challenging than ever before. Here, we look at six simple tactics you can use to reduce your cash flow problems and protect against similar issues in future.

1.) Improve your invoicing process

Better invoice management can do wonders for your short-term cash flow — especially if you struggle with customers not paying on time. Firstly, look into specialised invoicing or accounting software which can streamline the process. There are many options available to suit a variety of budgets, and you can find out which are compliant with HMRC’s digital tax initiative here.

Also, make sure you send invoices out promptly, and don’t be afraid to chase up unpaid invoices if payments don’t come in on time. Set a reminder to contact your customer when a payment becomes overdue. 

If it’s a consistent problem, consider introducing a late payment fee into your payment terms, or alternatively, offering a discount for upfront payment. 

2. ) Use asset finance to access funds

Refinancing a valuable business asset – like a vehicle, or machinery – can provide a much-needed cash injection. This type of finance allows business owners to access a cash lump sum based on the value of an asset. The asset becomes collateral for the loan, which you can repay over months or years.

Keep in mind that the age and condition of the asset in question will affect its value, and therefore, the amount you may be offered by the asset finance provider. 

3.) Renegotiate your supplier contracts

If you haven’t renegotiated contracts with your suppliers since they were originally set up, now might be the time. You could get some extra flexibility if you’re experiencing short-term cash flow issues, and aside from anything else, it’s good business practice to do so periodically. You never know when you might be able to secure a better deal. 

Here are some key points to consider: 

  1. Payment terms – Could you ask for an extension to ease your temporary cash flow problem? 
  2. Cancellation terms – Are you locked into the contract, and for how long? It may be possible to get a better deal elsewhere
  3. What’s included – If your regular order with this supplier includes items not covered in the contract, you could renegotiate the contract to cover these items, saving some money in the process 

4.) Prepare a cash flow forecast and look for opportunities

Preparing regular cashflow forecasts can help you identify opportunities to maximise your earnings. For instance, when you have extra cash flow you can bulk buy stock, invest in new systems for greater efficiency and less wasted resources, or pay off debts quicker to avoid costly interest repayments.

Cash flow forecasts can also help with identifying where funds are not being used optimally. Look at ways in which you can cut costs or increase your income, then test these solutions against your forecast to see if they can help prevent any shortfalls.

5.) Improve your existing profit margins

You may be able to alleviate short-term cashflow problems by improving your current profit margins. This is often overlooked by business owners who wrongly assume there is no room for movement. Go back to basics and consider: 

  1. Increase prices – Minor increases can make a huge difference to cashflow and are unlikely to scare away your customers
  2. Cutting costs – Consider how you might improve profits by reducing costs. This may mean negotiating a new contract, finding a new supplier, or buying long-lasting items in bulk
  3. Reduce waste – Could you improve inventory management processes to reduce money lost on waste stock? 

6.) Consider a small business loan

Another option to improve short-term cash flow is taking out a small business loan. Business owners will often use overdrafts, credit cards or lines of credit to help with short-term needs, as they’re historically quicker to set up than a term loan. However, now you can get approved for a business loan from Funding Circle in as little as 1 hour, loans are a viable option for short term needs too.

You can borrow £10,000 to £500,000 for cash flow at rates from just 2.9% per year. There are no fees to settle early,  and you can apply in just 10 minutes and get a decision in as little as 1 hour. Find out if you’re eligible in just 30 seconds, without affecting your credit score.

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.

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