7 Handy Hints for Cash Flow Success: Small & Medium Businesses

Cash flow is vital to the success of any business and is especially important to the small & mid market looking to grow and develop. The mismanagement of cash flow will more often than not leave your business vulnerable and could potentially lead to failure.

However, the benefits of positive cash flow stretch beyond simply keeping your business afloat. By managing your cash flow effectively you're able to better maintain your finances and can properly invest your money in gaining a competitive edge in your market.

The following are 7 handy hints to help you effectively manage your cash flow.

Invoice on Time

So many businesses struggle with invoicing dramas because they don’t invoice until the end of the week or month. The best way to keep cash flowing in your business is to invoice same day. The value of your great work is fresh in your customer’s mind and the sooner they receive it, the quicker they will make the payment.

Ask Customers to Pay Faster

There’s several ways to ask customers to pay faster. The simplest way is to give vendor discounts. Offer a favorable customer a 2% discount if the invoice is paid within 10 days, otherwise, the full amount is due in 30 days. If the product is higher margin, could you increase the discount? A win, win.

Analyse your Customer Risks

Take control of your receivables quickly by segmenting them into buckets according to risk – customers with a history of late or unpredictable payment need to be prioritised quickly for follow-up. By decreasing your DSO, a business turning over $10 million that reduces debtor days from 60 to 55 days achieves a positive cash inflow impact in excess of $135,000. The case for reducing your DSO should be clear.

Outsource Late & Higher Risk Debt

So you’ve identified some higher risk receivables outstanding with your customers. With overdue debt, the number-one guiding rule is swift escalation and don’t waste your valuable time on someone who won’t pay you regardless of your overtures. Debt collections agencies are the experts in this space and have the resources and insight to generate fast results. And given their fee structure is generally commission-based, you typically won’t pay for this service until you have cash back in your pocket.

Review your Supplier Risks

On the supplier side, there are some easy steps you can take to optimise the cash outflow burden of your bills. Firstly, schedule your bills for payment on their due date, not earlier unless a discount is offered. Secondly, with a strong trading relationship and a consistent payment history, many businesses should be happy to negotiate extended credit terms.

Check the Market Rates

Interest rates remain at historical lows, and when coupled with unprecedented competition amongst business lenders (be it traditional banks or emerging 'Fintech' disruptors), the current environment is a good one to take advantage of smart financing opportunities.

Drive Sales in the Door

Generating sales is the number one driver of cash-flow. Having a robust monthly sales plan overlaid against your budgeted expenditure will highlight periods of cash-flow risk. Once you are aware of these risks, you can build a sales plan to mitigate them, through activities such as:

  • short-term sales (e.g. discount or similar incentive)
  • identify 'low hanging fruit' sales opportunities with your existing customers
        - The commonly quoted 'average' being it costs 7 times more to sell to a new customer than to an existing     customer


Leverage free insight

D&B offers some of the best tools and insight due to our data coverage across the credit life cycle. Here are our key recommendations for small-to-medium sized businesses:

  • Participate in our Trade Exchange Program
  • Our complimentary tool to give you the Risk of Late Payment for each of your individual debtors. Your customers may pay you on time, but how do they pay their other suppliers? Trade Exchange offers real time insight on your receivables ledger.

  • Access our Business Expectations and Late Payments analysis
  • Business Expectations provides a leading indicator of business sentiment across the business landscape to help you plan for trends in the economy. It currently suggests confidence is at its highest point in over a year. Are you positioned to take advantage? Meanwhile, our latest Late Payments analysis shows businesses 2-5 years old pay the latest. Is your business impacted?