11 ways to improve cash flow for small business success

Whether you're a veteran in the small business game or just starting out, getting a handle on managing cash flow is crucial to your business’s success. A steady cash flow means you can pay the bills, jump on new opportunities, and build something sustainable. 

Increasing cash flow to your business doesn’t happen overnight — it’s more of a marathon than a sprint. You can be doing everything right, but if cash flow isn’t consistently managed, maintaining profitability can become an uphill battle.

Let’s explore how to improve cash flow for your small business, which will help you manage spending and ensure your money’s moving to all the right places.

1. Cut back on non-essential spending 

Trimming unnecessary spending is one of the quickest strategies to improve cash flow. When you begin to cut back on non-essential spending — like unused subscriptions, excess office space, or unsold inventory — you’re able to invest that money back into your business. 

This approach doesn’t necessitate a drastic reduction in every expense. Rather, it’s about keeping track of where your funds are going and adjusting from there. Expense management software can help you keep track of your spending so you can rest easy knowing that every dollar you spend is accounted for. 

2. Don’t wait to send invoices 

The sooner you send out your invoices, the sooner you can expect to be paid. This means you’ll have the funds you need to cover your bills, pay your team, and keep cash flowing smoothly.

Plus, promptly sending out invoices is just good business practice. It shows you’re on the ball and helps set clear expectations with your clients about when you need to be paid. And if a client is a bit slow on the draw, getting your invoices out quickly gives you more time to sort out any hiccups and chase down payments.

3. Keep an eye on your payment terms

Speaking of invoicing, it’s a good idea to update your payment terms to ensure you’re always getting paid on time. Setting the expectation upfront about when you expect to be compensated helps you avoid delays and any awkward “where’s my money?” conversations.

Further, frequently updating and enforcing payment terms is essential for managing cash flow. When payments come in on time, your business can cover ongoing costs, jump on growth opportunities, and handle any financial surprises that pop up.

4. Conduct customer credit checks

Stay proactive by scoping out the financial stability of new clients through credit checks. This approach enables you to identify potential risks, ensure your clients are prepared to pay, and avoid unpleasant surprises down the road.

While any sale is tempting, the effects of a late or missed payment won’t be worth it in the end. It’s wise to prioritize secure transactions and consistent revenue over the sheer volume of business. By conducting credit checks, you not only safeguard your cash flow but also build a reliable client base that contributes to the long-term stability and success of your business.

5. Efficiently manage your inventory 

Improving inventory management is an important part of increasing cash flow — but it’s a balancing act. Efficiently managing inventory often requires a bit of trial and error. You have to make sure that you’re locking in affordable pricing from suppliers, but you’re not over-purchasing and tying up unnecessary funds in unsold goods.

This is a great place to leverage expense management software like Expensify. With its real-time expense tracking and comprehensive reporting features, Expensify enables you to closely monitor inventory-related costs and sales trends. This enables smarter, data-driven decisions on when to buy more stock, how much to buy, and at what price, which ultimately optimizes cash flow. 

6. Choose to lease

While buying equipment, property, and vehicles for your business can be cheaper in the long run, the up-front costs can be overwhelming for a small business. Leasing these items can help keep initial costs low, freeing up capital for other investments. Plus, it offers flexibility, so as your business needs evolve, you’re not stuck with outdated equipment or unused office space.

In order to keep track of your monthly lease payments, consider leveraging free expense report templates or opting for an automated expense report process. Software like Expensify makes it easy to keep track of payments, compare budgets, and ensure you’re allocating funds to all the right places.  

7. Offer incentives for early payment

Another way to ensure payments are made promptly is by offering incentives for early payments. Incentives could include a small percentage of the amount owed on the invoice, discounts on future orders, or gift certificates. 

Early payments lead to increased financial stability for your business, fostering better supplier relationships, reducing stress, and paving the way for improved forecasting and budgeting. Ultimately, these payments lay the foundation for a more financially secure and thriving business environment.

8. Diversify revenue streams 

To optimize cash flow, avoid putting all your financial eggs in one basket. Diversify your revenue streams by introducing new products or services, exploring different markets, or collaborating with other businesses to offer complementary offerings.

This approach reduces reliance on a single income source, thereby mitigating risk and enhancing financial stability so money keeps coming in, even if one product or service experiences unexpected setbacks. 

9. Opt for digital payments 

Opting for electronic payments gives you more freedom over when (and how) you pay your bills. Since you can wait until the morning a bill is due to pay it, this method gives you more flexibility with your finances, allowing you to make informed, strategic decisions on payment timings.

Beyond the conventional bank transfers, various digital payment platforms like PayPal, Stripe, and Square have streamlined the process for businesses. These platforms offer a variety of features tailored to business needs that provide an efficient and user-friendly experience. 

10. Leverage a business credit card

Using a business credit card can be a powerful strategy for optimizing cash flow. Putting your payments on a company card not only helps you build credit but also offers lots of potential savings through cash-back rewards and incentives. Plus, having a business credit card allows you to make necessary purchases exactly when you need to, enabling you to seize opportunities in real time.

Want to explore the potential savings that await when you switch to a company card? Expensify’s company credit card savings calculator is a great place to start. 

11. Plan for future cash needs

While this might seem like a given, anticipating future cash requirements is a must for navigating both unexpected costs and growth opportunities. Effectively planning for the future involves developing detailed financial forecasts, maintaining a disciplined budget, optimizing the timing of payment inflows and outflows, and creating an end-of-year financial checklist to ensure you stay on track. 

Doing all of this by hand can be, frankly, a nightmare. Expensify eases your woes by helping you analyze past expenses to predict future financial needs. It supports budgeting efforts, offers real-time tracking, integrates with your accounting software, and keeps tabs on all your expenses so you can focus on making informed and timely business decisions.

The bottom line? A proactive approach to planning, coupled with the right tools, can significantly enhance your business’s ability to manage cash flow and navigate upcoming financial needs. 

Common questions about cash flow

Curious about the ins and outs of cash flow? We can help. Explore our FAQs below. 

What is cash flow?

Cash flow is the total amount of money going in and out of a business at any given time. It’s an important factor in assessing the financial health of a company, ensuring it can meet its financial obligations and remain profitable. 

What are the three types of cash flow?

The three main types of cash flow are operating, investing, and financing. We’ve broken down what each means below:

• Operating cash flow: This represents the cash generated by a company’s regular business operations and reflects how well it can generate profits from its operations. 

• Investing cash flow: This is the cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment, or long-term assets. As a heads up: negative investing cash flow is normal for growing companies, as it usually means the company is investing in its future.

• Financing cash flow: This includes all cash inflows from investors, such as banks and shareholders, and outflows to shareholders as dividends as the company generates income. This type of cash flow shows how a company funds itself and pays back investors.

All three types of cash flow are included in a company’s cash flow statement. Learn how to prepare a financial statement on our blog.

What affects cash flow the most?

Typically, sales and revenue affect cash flow the most, though this can vary from business to business. An increase in sales generally contributes positively to cash flow, while a decline can hinder cash flow. 

Additionally, expense management can make a huge difference in a company’s cash flow as it directly impacts the amount of cash retained. The timing of payments also plays a crucial role — even profitable businesses can face cash flow issues if it doesn’t manage the timing of receiving payments and settling financial obligations like debts and payroll.

What causes a lack of cash flow?

Declines in sales or revenue, high expenses, and slow-paying customers can cause a lack of cash flow. Ineffective financial management or a lack of planning can also contribute to cash flow shortages, which is why adopting technology to help you track expenses is crucial for business.

Expensify gets your money where it needs to go

Small changes can make a big difference when it comes to increasing cash flow. Implementing even a few of the strategies above can help channel more funds back into your business, helping you foster growth while staying profitable. 

And remember, you’re not in this alone! With tools like Expensify, managing your finances is a walk in the park. We ensure every penny is accounted for so you can focus on what you do best — running your business.