Six Ideas for Improving Your Business Cash Flow

1. Review Your Purchasing Practices

Many established businesses have “embedded suppliers,” which may or may not have been the low-cost suppliers when they were first chosen — and since it was so long ago, nobody recalls how the decision was first made! To set things right, make a list of all of your purchased goods and services, sort them by dollar amount, and review the entire list, top to bottom, in each instance asking yourself if and when you last requested pricing from competing suppliers. Don’t overlook intangibles such as your company’s medical insurance; when was the last time you initiated a discussion with a competing broker? Identify and switch to alternative, lower-cost suppliers, if they can match the quality and service of your current ones; it will help both your cash flow and your profitability.

2. Improve Supplier Payment Terms

Especially if you have a fast-growing business, you may find that key suppliers are open to offering you extended payment terms on your purchases as a way to deepen their relationship with your firm and support your business growth, which will help drive their growth for years to come. In exchange for this accommodation, you should be prepared to disclose additional information about your company’s financial health and growth plans, so that your suppliers can make a well-informed decision and understand that they are not running an undue financial risk.

3.  Screen New Business Prospects From an Operating Cycle Perspective

Be savvy about trying to grow your business in ways that tighten up your operating cycle (i.e., the time from when you acquire inventory to when you collect cash from your customers). Do this by going after new accounts that lower your inventory requirements and shorten your accounts receivable collection cycle.  For example, winning increased orders from a number of existing local and regional customers with proven track records of paying your invoices on time may do more to improve your cash flow than landing a single large new national account, especially if the latter requires you to build mountains of unique inventory and/or finance ruinous amounts of accounts receivables.

4. Obtain a Bank Line of Credit

If you don’t already have a bank line of credit, set a goal of trying to get one, as it will help you smooth out the natural ebb and flow of cash flow due to seasonality, changes in business conditions and working capital requirements.

5.  Invoice Early and Invoice Often

Even if your customers unfailingly pay in 30, 40, or even 45 days after receipt of your invoice, you may be able to improve your cash flow by invoicing earlier and more often:

• If you are a service provider who is currently sending out invoices only at month’s end, now is a good time to scrap that approach and send out invoices as soon as the work is complete. 



• If you send your invoices by snail mail, convert to e-mail in order to get them into your clients’ hands more quickly, speeding up payment back to you.



• If you are not already, ask for deposits when you get an order. If that is already your practice, explore opportunities to increase the percentage you request. For complex, multi-phase projects, opt for more frequent billing when you have the choice.

6.  Pick the Right Credit Card

If you use credit cards for some of your business purchases, and have more than one, learn the monthly cut-off dates for each card, and make a point of always selecting the credit card that is furthest from its cut-off date at the time of purchase. (This practice should improve your personal cash flow as well.)