5 Easy Ways to Improve Cash Flow

Ever felt like you’ve got plenty of work but not enough cash coming in? Achieving good cash flow is not a black art. Here are some easy ways to improve cash flow. The goal is always to make sure you’ve got more money coming in than you have going out.


Keep on top of your invoicing

Feel like you’re too busy to invoice? Take a step back and look it at logically: if you don’t invoice, you don’t get paid, and if you don’t get paid, you go out of business. You might be getting lots of work but if you don’t invoice promptly, the cash flow of your business will suffer, and that will make things difficult on all sorts of level. Will you have enough funds to pay tax and to keep the business going and growing? Clients can be slow when it comes to paying invoices. 30 days is the established limit but there are some companies who have 45, 60, and even 90-day invoice payment policies.


Be flexible. Make it easy and convenient for clients to pay you

You can improve cash flow by being flexible when it comes to payment. And that doesn’t mean bending over backwards and then feeling like you’ve been hard done by. Offer clients various ways to pay, make it simple for them to pay you, and you’re far more likely to get what you’re owed on time. If you’re working on a big, one-off job for a client, consider asking for partial payment upfront and offer a discount as a sweetener. But not too generous a discount of course! Be clear about your payment terms and conditions from the start, and always invoice promptly so your client doesn’t have to rack their brains to remember your service.


Pay yourself in a tax-efficient way

Being more tax efficient is another way to improve cash flow. Should you pay yourself a salary? Salary and dividends? What about a bonus? If you’re a limited company, a blend of salary and dividends is generally considered the most tax-efficient way to pay yourself. See our separate blog post, How to Pay Yourself Efficiently, for more info.


Get a good accountant who can forecast for you

A 12-month forecast will help you identify problem areas and periods in which charges may come all at once, so you can plan for them and put coping strategies in place. And there’s a lot to be said for good bookkeeping. Knowing exactly how much tax you’ll have to pay means you won’t get a nasty surprise at the end of the year, which could blow your cash flow apart.


Understand how money flows in your business

Every business has highs and lows. Some have to deal with the issue of seasonality. There may be times when you need to pay suppliers but also invest in stock. Paying your bills on time and running payroll can seem like a hard balance to strike but it’s possible as long as you’re smart about managing your cash flow. If you understand how money flows through your business, you can manage it better. Purchases should be business critical. Payments can be spread to avoid parting with huge chunks of money in a single transaction. There’s hire purchase and leasing to consider too. You can extend your line of credit. All are options that may or may not work for you. The best thing is to discuss them all with your accountant, who will know the latest rules, regulations, and pros and cons of each option for sole traders, partnerships, limited companies and other types of company.


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