Ways to Improve Your Cash Flow

12 Ways to Improve Your Cash Flow

Kathy Simpson

Managing cash flow is the lifeblood of every small business. Your work may reward you in ways that aren’t about money at all, but if the cash flowing in doesn’t exceed the cash flowing out, you’ll probably be in trouble before long.

These 12 ways to improve cash flow can help you encourage incoming payments, delay outlays of cash and stay on top of everything in between–like payments, late fees, and billing cycles.

1. Invoice immediately. Don’t wait until  next week or next month. If you wait to invoice your clients, your creditors may think they can wait, too.

2. Use electronic billing. It’s fast, and customers are likely to respond more quickly when they can pay instantly. Your deposits can be deposited directly to your account and everyone saves on the cost of paper and stamps. Freshbooks and WePay are two online billing programs designed for small business owners.

3. Get it in writing. Set clear payment terms and expectations in your initial customer agreements. Spell out your terms on every invoice:

4. Include a specific due date. “Due upon receipt” can be ambiguous, while “payment due within 30 days of the bill date” clearly communicates your expectations.

5. Institute late fees. Without them, your customers may put off payment until a time that’s convenient for them but not for you.

6. Offer positive incentives for early payment. Give customers a good reason to pay sooner than they normally would. An example might be a 1-2% discount for payments received within two weeks of the bill date.

7. Sell your invoices.If your need for payment is especially urgent, you can sell your invoices for work already done to a factoring company. In exchange for a small fee, they’ll pay 90-99% of your original invoice amount upfront. This may be a good option if you typically have to wait 30, 60 or 90 days for payment of your invoices.

8. Slow down on bills. Hold off on paying bills until they’re due. If you’re presented with a worthwhile incentive for early payment, by all means, take advantage of it. Otherwise, set your target for a day or two before the due date (just to make sure your payment arrives on time and you don’t incur late fees). If you pay electronically, you can schedule in advance and with precision.

9. Periodic payments.Take advantage of periodic payment programs that are fee-free. For instance, small businesses with workers’ compensation coverage can pay their premiums every time their payroll is run. Payments are based on actual payroll, eliminating the need for a large down payment, and carry no installment charges.

10. Monitor your cash flow status on a  weekly basis. Check off what’s been paid, what’s coming due and what’s late. Send reminder notices as necessary, and don’t forget to tack on your late fee.

11.Get a CPA if you don’t already have one. A CPA can help guide you toward your financial goals and offer corrective action should you begin to veer off course. Taxes, of course, are part of the equation and ever-changing, making the aid of a professional essential. A CPA can help ensure you’re taking best advantage of the deductions that can benefit your business and help improve your cash flow.

12. A line of credit. If you occasionally meet up with cash flow problems, a line of credit with a bank or credit union can be helpful to tap into as needed.

Next Steps: Not sure if you’re using the most budget-friendly CRM system? Don’t know if you’re using the right tools for managing your day, paying your employees, and billing your customers?  We’ve got you covered with the weekly Small Biz Ahead Newsletter. Sign up today and start receiving the weekly newsletter chock full of the latest tools and resources to help you run a successful business.

23 Responses to "12 Ways to Improve Your Cash Flow"
    • Feliz Garcia | September 10, 2020 at 1:37 pm

      Great article! Diff sharing with my clients. If it’s one thing I’ve learned growing my business is that being an excellent bookkeeper can have a huge impact on small businesses. I love my CPA counterparts and I seek them for advice. But an excellent bookkeeper will handle all of the dirty work a CPA wouldn’t. And there’s huge money to made too in the bookkeeping arena.

    • Steve Perry | September 4, 2020 at 3:21 pm

      A small business needs neither a CPA or a CMA. They need a small business accountant. I am a small business accountant with a Masters Degree and there is nothing that either of those two designations can do that I cannot do.

      As for a tax focus, the biggest cost is taxes. As an Enrolled Agent I am a tax expert. The small business will face a number of tax and compliance issues including financial planning. The business owner needs someone who is experienced, educated and passionate about helping the business grow.

      The best accountant for a company is one that understands the big picture and can create, and interpret the reports and be there for the business, not one who just has a bunch of letters after their name.

    • Kathy H | June 10, 2019 at 12:21 pm

      I wish you the best of luck on your new book. Disagree with you completely. Many small CPA firms and real people doing bookkeeping are not horrific. Perhaps the small businesses you have dealt with were horrific. Just as with any professional, you will have excellent, good and mediocre. If you you know of horrific circumstances I hope that you recommended those clients to sue their horrific CPA.
      Most small businesses want to go cheap as possible and it will hurt them in the end.
      For small business owners under $1 million in annual sales I firmly believe you need a professional part time bookkeeper a couple of hours on at least a monthly basis. So a 2 month learning curve just like your IT or Sales support. Spend your time doing what you do best-that’s why you started a company. Pay them correctly. If you sell candles I can purchase some at the $ store. What makes your product different? You can get a “$ store” accountant or bookkeeper. Get it?
      Good luck to all if you small business owners! You are the future of the USA !

    • Randy Kirk | June 8, 2019 at 2:42 pm

      I have been doing business consulting for the past decade and written a number of successful small business books. I currently do MasterMind groups under the SoCalMasterMind.com brand. So I have seen lots and lots of small business income statements and balance sheets. The work of most CPA’s and outside bookkeepers is horrific. So much so that I’m working on a new book that will hopefully help owners to set up their books to be more useful and also learn to read the information for the “diamonds” to be found, since their outside accounting professionals aren’t helping with analysis either (rare exceptions.

      You asked for names.

      Shaila Chamberlain is a CPA, CMA, MBA who is co-authoring the book and is one you can trust to do your books and give you spot on advice. SChamberlainCPA.com
      LaVonne Shields is an accountant who has the same attitude, skill set and experience. accountingstrong.com
      John Cummings is a factor who does non-recourse purchasing of invoices for truckers, manufacturers, trade schools, and employee placement service companies. John is fair, and still small enough to be very personal with his clients. ACSFactors.com

      • Hannah Sullivan | June 10, 2019 at 9:08 am

        Thank you for these suggestions, Randy!

    • Karl | June 6, 2019 at 11:05 am

      Our CPA is outstanding. Provides a second set of eyes and is maybe at most a couple grand per year and worth every penny. We also give them our personal tax business along with a lot of our employees so it helps everyone. He receives all of our business and we receive some great incentives. We have developed a good partnership and he likes to see our business grow. Because of this we have referred clients to him.

      A number of years ago we went with credit card payments at completion of work and it has been amazing. Sure you pay a little (close to the cash incentive of paying early listed above), but you are paid nearly within 1-2 business days to help cash flow. If you have any large projects we ask for a deposit to reduce merchant fees and start the payment process early.

      Also accepting ccards is a great time saver. I don’t have to wait, log and deposit checks, etc. A few large clients are set up with ACH transfers which are free and timely.

      Finally everything comes down to fair and reliable service. Our clients don’t question what we ask of them because of our reliability and after doing business with us once they understand the process.

    • Mark Landed | June 5, 2019 at 2:29 pm

      In regard to #7 you will find a non fintech non internet factor who may not fund “overnight” but will structure the funding accommodation to the clients situation and charge less .
      In regard to 8 a buyer can take advantage of supply chain finance to have their vendors paid immediately at a discount and earn a rebate when paid.
      Mark Landes
      Landed Capital
      We monetize your balance sheet

    • Geri Reski | June 5, 2019 at 1:00 pm

      Having been an independent insurance agent for 46 years, I never had receivables. Clients were given written proposals, applications, insuring agreements to review(copies of policies), and a choice of direct bill (if the policy had insurance company billing capabilities), or full payment (if insurance company does not bill directly) and if full pay on those types of policies was not convenient, we always offered premium financing. The latter required a down payment which we would collect prior to putting any policy at all in force (binding). We also required a down payment for company-billed policies. We offered multiple ways to pay electronically, and signed forms also presented electronically.

      Making it easy, convenient, and clear to all clients what they were buying, how to buy and how to easily pay.

      These days it is imperative to provide customers ease of doing business and give them a reason why they should do business with ONLY you above any and all other choices out there…

      As a result, cash flow was always incredible, customers were satisfied and we received a continual flow of referrals!

      My 2 cents!

      • Hannah Sullivan | June 5, 2019 at 1:31 pm

        Thank you, Geri!

    • Kathy H | June 5, 2019 at 12:20 pm

      So I will get in on this CPA vs. non CPA discussion with Chris and David.
      I am a degreed accountant (B.S.) not a CPA or CMA but with 25 + of experience with mostly small mfg. companies.
      -A good CPA is a necessity for a small business. Your tax return and most likely audited financial statements need to be prepared by a CPA. This makes your business more legit especially if you need financing, not just for cash flow but for expansion. Banks do not usually accept a “PA” tax return or financials when you looking for a loan. I know this from recent experience.
      -you NEED a bookkeeper! NOT your husband/wife/mother/neighbor or yourself (unless you are an accountant.) A good CPA firm will offer bookkeeping services at an hourly rate much less than their accounting/tax rate. If not, place an ad on Indeed. Lots of profe3ssionals look for jobs for a couple hours a week or month. I did this for many years. You need to work on your business-not on your accounting.
      -Get an accounting program. QuickBooks is the most popular-not too expensive and all accountants (and most bookkeepers) know how to use it. Peachtree is a good second option.

      Other comments on the article-it was written in 2014???? come on. ok updated in Feb.

      -giving discounts for early payment on your customer invoices is done. 1%. Really?? Old fashioned. Incentives for early payment from your customers should depend on your business. Deposits for large amounts should be required. Yes, it will take some talking to your customers, but isn’t that what you do best? You can also blame the new bookkeeper or accounting firm you hired. Just like charging late fees. No one will pay them and you will waste time talking to your customers about it and paying your bookkeeper or CPA to adjust them.

    • Michael | June 5, 2019 at 12:15 pm

      Be careful with factors and know what you’re getting into – not all are created equal. Some of the companies mentioned still require weekly (sometimes monthly) payments and will still be a drain on your cashflow. It’s nice to get SOME of the cash upfront, but when you have to use it just to pay them back because your invoices still haven’t been paid, it doesn’t make much sense.

    • Joyce Abate | June 5, 2019 at 9:40 am

      Great article and helpful responses – thanks to all!

    • Kevin Vallelunga | June 5, 2019 at 9:11 am

      Factoring is a very costly solution. The lenders listed above lend at very high rates, over 30%, some even at 36%! Once you get caught in their trap it is very hard to get out of the cycle. I would strongly advise against it. If you have a customer who takes more than 60 days to pay you need to FIRE them. They do not value your services.

    • Gene Marks | June 5, 2019 at 8:11 am

      Dave Divis | June 4, 2019 at 10:57 pm
      Hi Dave,

      Factoring has been around since Roman times and it’s a great way to raise money for your business.

      Check out:
      Lending Club – http://www.lendingclub.com
      Fundbox – http://www.fundbox.com
      Kabbage – http://www.kabbage.com

      These firms provide a variety of services from buying your invoices to providing quick online loans.

      I interviewed the CEO of Bluevine for an Inc.com article which should be helpful for you:

    • Dave Divis | June 4, 2019 at 10:57 pm

      How about some possible companies for #7? I do have clients that sometimes take forever (record is 7 months!) to pay. There have been times where selling an invoice would have been a great idea. If you don’t, or can’t make recommendations, how about some tips on how to find a company that buys invoices?

    • Linda | June 25, 2018 at 1:06 pm

      I couldn’t imagine running my business without the support and guidance of my CPA. Sure, he does all the taxes and reports each year for me and my company, but he goes above and beyond that. My CPA is an advisor, mentor, co-planner and sounding board. I think of the title “CPA” as a necessary one that generically identifies the work I will be receiving. That said, if someone is looking to sign up with a CPA, the specific arrangement and services to be received should be detailed in the service agreement, and if all that a CPA can offer is taxes and bookkeeping, I might want to continue searching for a provider with a more comprehensive approach to small business needs. Thankfully, I have just that.

    • Chris Baker | June 17, 2018 at 10:51 am

      Hey David, responses noted below your initial comment.

      Fair point. I generalize too much — and to be fair, plenty of CPAs do not do tax or audit work – –

      No worries, we all have our strengths and weaknesses. The only thing we can do is try to learn and grow every day and do the best we can to improve.

      Nonetheless, in the mind of 74% of small business people I meet, CPA = TAX = ACCOUNTING. – –

      Totally agree with CPA = tax = accounting part. I also find that, usually, when I meet people out in the community when I say CPA they automatically associate with tax. The connection from tax to accounting is an organic connection and for the most part makes sense. See below for more.

      It’s a shame that the professional designation has come to be so wrapped up in tax… – –

      I agree!

      and at the same time the CPA brand is so well marketed that small businesses think they need a CPA for ALL accounting – –

      I do think the CPA brand has done a great job of marketing and keeping the designation relevant over the years, but I’m not sure I agree with you about your statement “the CPA brand is so well marketed that small businesses think they need a CPA for ALL accounting”. If you look up the definition of accounting, it states “the action or process of keeping financial accounts”. For the most part, traditionally accountants have been known as “bean counters”. We’ve typically been the people who the keep the books. There is a natural segway from keeping the books to doing the taxes… because you need the books to do the taxes. So it’s not so much because of marketing, but just an organic flow of process to get the work done. Although is a direct flow between tax and accounting, preferably these tasks should be completed by separate people or departments.

      In your original post you referenced “day to day operational and management finance”. If you look up the definition of finance, one of them states “Finance is a term describing the study and system of money, investments, and other financial instruments.” I don’t disagree with you and as we both know this type of service is invaluable to a business owner. But this is a fundamentally different scope of the service than what #11 is saying accountants provide. Instead of you stating that the writer made a mistake by suggesting to hire a CPA (because a business usually needs help with bookkeeping and taxes), you would have been better served by stating “the article is great, but the writer left one important piece of the puzzle, and that is “consider hiring a finance professional who specializes in day to day operational & management finance”. You would have gotten your point across, established your value, and done so with our tearing down the team or minimizing the work of the other team players.

      So it’s really the linkage between CPA and Accounting that I rail against: When Small Business owners reach out to a Tax preparer to do their day-to-day operational accounting, they inevitably get bad advice and bad service – –

      See notes above. I agree with you. If someone only specialized in doing taxes, they should not be the bookkeeper. If the firm or person has experience doing both, no issues there, although really you should have two different doing the work to keep independent. Regarding bad advice, I agree with you, usually the bookkeeper/tax person should not be providing the finance advice. That’s why they should hire someone such as your self that has the “finance” background. There is nothing wrong with the linkage between CPA = tax = accounting, this makes total sense. If you look at any Fortune 1000 company, they typically have both “accounting”, “tax” and “finance” departments.

      So — I wonder (a) why you choose to keep your CPA to do non-CPA work: – –

      Going back to the definition of accounting, we keep and maintain their accounts, i.e. bookkeeping. I am a licensed professional, certified by the state. And we serve the public. It all makes perfect sense. Probably more so with our work than that of other CPAs. So really, the acronym fits perfectly for what we do. The core of service, the reason why we are here is to help protect these people, and we do this by providing bookkeeping services.

      As a CPA you have to be educated 5 years in college to obtain the accounting degree and license. You have to take a pretty tough (respected) exam to establish competence, then work in public or private accounting, and every year take 40 hours of continuing professional education. When this is communicated to people, they tend to respect you more than some guy off the street who proclaims themselves to be an accounting professional or expert.

      (b) whether your clients care if you are a CPA; – –

      Yes, they do. As noted above, when we tell them this, this usually garners respect.

      (c) if you call yourself a CPA in your marketing – –

      Si, senor.

      (d) if you might be better off calling yourself an adviser or “personal CFO”??? – –

      Many times we’re working with financial planners to help contribute those more “personal CFO” services. I simply made the point for the individuals we serve, we go above and beyond just the routine bookkeeping… we can assist with tightening credit policies, getting loans from the bank, negotiating with vendors, and projecting cash flows so there are no nasty surprise. But this is not the “core” of what we do. We have the CPA, as well as DMM moniker, because this the core of what we do. There are a lot of other financial planners and professionals who use the terms adviser and personal CFO. Personal CFO a lot of times is connected with business. So for now trying to keep these identifiers separate and focus on our own niche.

      Thanks for the thought exercise – –

      Sure thing, I appreciate your thoughts too. Good to keep the brain going and growing. Hope you’ve been enjoying the weekend!

    • David Worrell | June 15, 2018 at 1:38 pm

      Thanks Chris:

      Fair point. I generalize too much — and to be fair, plenty of CPAs do not do tax or audit work. Nonetheless, in the mind of 74% of small business people I meet, CPA = TAX = ACCOUNTING. It’s a shame that the professional designation has come to be so wrapped up in tax… and at the same time the CPA brand is so well marketed that small businesses think they need a CPA for ALL accounting.

      So it’s really the linkage between CPA and Accounting that I rail against: When Small Business owners reach out to a Tax preparer to do their day-to-day operational accounting, they inevitably get bad advice and bad service.

      So — I wonder (a) why you choose to keep your CPA to do non-CPA work; (b) whether your clients care if you are a CPA; (c) if you call yourself a CPA in your marketing; and (d) if you might be better off calling yourself an adviser or “personal CFO”???

      Thanks for the thought exercise.
      David Worrell
      Fuse Financial Partners

    • Chris Baker | June 14, 2018 at 4:20 pm

      Hey David, thanks for the comment.

      Overall, I’m sure what you say has a lot of truth. But being one of the few CPA’s out there that has taken a different approach, my only feedback is that you do not include all of us in your generalizations/assumptions.

      My company provides daily money management services to individuals, particularly the elderly and disabled. In your words, we act as their CFO. We are in contact throughout the year and are excellent communicators. We have to be. Our fees are no where near $250-$750 per hour. We have been built to specifically help individuals, therefore we are much more affordable. And just as you said in your last paragraph, we provide those same kinds of services for our clients. It’s a very rewarding line of work and hope it catches on with the main stream public.

      So just remember, a lot of what you say might be true, but not for all CPA’s!!

      All the best to you,

      Baker DMM
      Think Forward, Live In The Moment

    • David Worrell | June 13, 2018 at 11:26 am

      Excellent article, and spot on…. with one exception.
      Hiring a CPA is probably a mistake for most businesses, and here’s why:
      * CPAs are tax (and audit) focused. Tax accounting is world’s different than good “Management Accounting”. In fact, there is a designation for Management Accountants — CMA.
      * CPAs are so busy for half the year that they can’t return phone calls. Good luck finding on in April.
      * CPAs are notoriously bad communicators, and what you need is someone who can make sense of the numbers and tell you what’s going on in your business.
      * CPAs are expensive — like $250 to $750 per hour. A good management accountant will charge $50 to $150 depending on skills required.

      So… rather than subject yourself to bad advice from an expensive nerd, please consider hiring a finance professional who specializes in day to day operational & management finance. Find a CFO (or a part-time or “Fractional” CFO) who can interpret the finance numbers, and also look at what’s really going on in the business.

      When cash flow is tight, an inexpensive part time CFO can work wonders — tightening credit policies, getting loans from the bank, negotiating with vendors, and projecting cash flows so there are no nasty surprises. An expensive CPA is unlikely to do any of those things for you. (After all, they have tax clients waiting for their expensive advice about tax loopholes!)

      Dedicated to your profits,
      David Worrell
      Fuse Financial Partners

    • Chris Baker | June 13, 2018 at 11:09 am

      Great advice, thanks for sharing! I’ve really been enjoying these Hartford Small business posts!

    • David | June 13, 2018 at 9:43 am

      Excellent advise as is with most of your SmallBiz Ahead Newsletters. Thanks

    • Lisa | November 14, 2017 at 12:32 pm

      Trying to

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