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Small Business Cash Flow Management

As everyone who’s ever started their own business can confirm, cash is king. Without a steady flow of capital into the business, your ability to expand – and even to stay afloat – is likely to be severely compromised. That’s why cash flow management and forecasting play such a vital role in maintaining the financial health of your business. Get more information about small business cash flow management, including the benefits of cash flow management and a rundown of our top tips for managing cash flow.

Basics of managing cash flow

From paying suppliers and purchasing materials to meeting payroll and keeping the lights on, it’s crucial that your business can maintain a steady flow of working capital. Cash flow management and forecasting has two, very simple goals:

  1. To encourage your customers to pay their invoices as quickly as possible.

  2. To delay outlays of cash for as long as is reasonable and fair.

As such, taking control of your cash flow management system should be oriented around finding solutions to those two issues.

What are the benefits of cash flow management?

There are a broad range of advantages associated with managing cash flow effectively and efficiently. Most importantly, a good cash flow management system ensures that your business is primed to deal with any eventuality that could befall it. Imagine how your business would deal with an unexpected penalty, for example.

Without effective management of your cash flow, your business could be forced to cancel orders (as you may not be able to fulfil them) or lay off employees. Intact cash flow reserves give you the cushion you need to manage these types of events.

Tips for small business cash flow management

There are a broad range of techniques for managing cash flow that small and emerging businesses can make use of. Here are some of the best ways to improve your cash flow management system:

  1. Get invoicing right – When it comes to managing your cash flow, invoicing is the most important piece of the puzzle. Deliver your invoices promptly so that you can receive payment from your customers as quickly as possible. You should consider investing in automated invoicing to improve your turnaround times and reduce delays to sending invoices.

  2. Ensure your books are kept up to date – You can also improve your cash flow by ensuring that your accounting information is updated on a regular basis. This way, you can gain a clear insight into the financial health of your company at a glance, giving you a better foundation from which to forecast future cash flow. It’s also essential to conduct regular bank reconciliations. Otherwise, you could end up thinking there’s more money in your accounts than there really is.

  3. Optimise your accounts receivable process – If you’ve extended credit to customers, it’s very important to make sure that your accounts receivable process is up to the task. There are a broad range of techniques you can use to boost your accounts receivable and get cash off your balance sheet and into your bank account. From offering positive (and negative) incentives to payers to making sure your credit policies are clear and concise, optimising accounts receivable can be an excellent way to ensure cash flow is managed correctly.

  4. Liquidate cash that’s tied up in assets – From obsolete inventory to unused equipment, your cash may be tied up in assets that either aren’t being used or can’t be sold. Even if you have to sell below the book value, liquidating cash that’s otherwise not able to be used can contribute to a healthy cash flow.

  5. Build up a cash reserve – If you hit choppy waters with regard to your cash flow, access to capital can be all-important when it comes to the continued survival of your business. That’s why it’s important to build up a significant cash reserve that you can use to insulate your company from the vagaries of the business world.

Managing cash flow with GoCardless

GoCardless can be a significant tool in the pursuit of effective cash flow management and forecasting. By allowing customers to pay automatically with Direct Debit, your business can dramatically cut down the time it takes to receive payment from customers.

Direct Debit is what’s known as a ‘pull’ payment method, meaning that it allows you to collect payment from your customers without needing their manual approval every single time. In a nutshell, it eliminates delays between the completion of work and final payment.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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GoCardless Ltd., Sutton Yard, 65 Goswell Road, London, EC1V 7EN, United Kingdom

GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services.