5 Best Practices to Improve Cash Flow



If everyone knew exactly how to improve the cash flow of his or her small business, there would be no such thing as “small business.” Fortunately, there are many tips and proven tactics that can help take your company from one level to the next.

One simple task that every business owner should be doing is depositing money into interest-earning accounts. These accounts let your money sit and accumulate more capital for you and you don’t have to do a thing. Since the interest rates on these types of accounts are often lower than those on savings accounts, it’s a good idea to keep the majority of your money in a higher-paying account like a certificate of deposit (CD,) or a money market account. Then you just need to transfer the necessary minimum amount from your higher-paying accounts in order to keep the interest-bearing checking account afloat.

While this is a great method to let your money work for you, it’s a good idea to keep as much as liquid cash as possible, which means avoiding long-term deals on CDs, using penalty-free CDs, or only investing a small percentage of your money that you won’t touch until the account matures. It’s also smart to have customers directly deposit payments into your higher-paying accounts so they start accumulating interest immediately.

Another way to improve cash flow is to create stage payments or long contracts in order to keep customers who aren’t always willing to place a deposit on an order. Stage payments and long contracts can be written to the benefit of the owner while still accommodating the customer. Accepting or requiring payments when certain parts of the contract are completed is a good way to build trust and cater to the needs of your customers while still conducting smart business practice.

A third method is to offer discounts for early payments and interest penalties for late payments. Encouraging fast payments saves you time and effort while deterring late payments does the same. On-time payments decreases the lag you experience between cash inflow and outflow and the problems that come with it.

If you provide a good or service that is reused by the same customers many times over a period of time (magazine, landscaping, etc.), offering a subscription plan garners the interest of customers with deals on prices over certain periods of time while also securing future business for you and your company.

A final tip to increase cash flow to your small business is to clean out your inventory. Obsolete and unused equipment and tools takes up space and money. Selling your unused or unwanted inventory can free up space while earning you money at the same time. Garage sales aren’t just for homeowners!