How a Business Can Improve Its Cash Flow

Many young businesses rely on cash flow to keep their businesses afloat, from being to pay suppliers, pay salaries, cover office overheads, stock and more. The ability to manage and stay on top of cash flow and bring in regular revenue can be key for survival.

Almost a quarter (24%) of UK SMEs cite cash flow challenges and lack of working capital as a barrier to growth.

At the same time, small businesses are owed an average of £21,000 in unpaid invoices, which can stall investments and hiring. Improving cash flow is vital for firms of all sizes.

This article explains practical steps that companies can take today.

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Cash flow issues often begin with late payments. When customers delay settling invoices, businesses struggle to cover day-to-day costs. Seasonal swings in sales can leave firms short of cash during quieter months.

Poor invoicing practices, such as unclear terms or irregular billing schedules, also contribute.

Even healthy companies can face a sudden squeeze if outgoings spike unexpectedly, for example through a bulk order or an unplanned repair. Understanding these triggers is the first step towards keeping funds moving smoothly.

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Businesses should issue clear, accurate invoices as soon as a job is complete. Including concise payment terms, such as 14-day settlement, helps set expectations.

Gentle reminders before the due date can prompt clients to pay on time without causing offence.

Some firms find that offering a small discount for early payment encourages quicker settlement and strengthens relationships.

Enabling online payment methods, such as bank transfers or card payments, removes friction and makes it easier for customers to clear their balance straight away.

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Keeping a tight rein on outgoings prevents unnecessary cash drain. Regularly reviewing subscription services and cutting those that bring little return will free up funds for core activities.

Negotiating better terms with suppliers, such as extended payment windows or volume discounts, can save on immediate business expenses. It also pays to delay non-essential purchases until the cash position is stronger.

By monitoring all invoices and bank statements weekly, businesses can spot overspending early and adjust budgets before money becomes tight.

Forecasting brings clarity to future cash needs. Many small firms begin with simple spreadsheet models that track projected income and outgoings.

As the business grows, dedicated cash-flow software can automate this process and integrate with bank accounts and invoicing systems.

These tools can generate weekly or monthly forecasts, highlight potential shortfalls, and suggest when to draw on credit lines. Having a reliable forecast in place means that decision-makers can plan investments or hiring without risking a sudden cash squeeze.

Building a cash reserve is a safety net for lean periods and unexpected expenses. Aiming to hold at least one month’s operating costs in reserve provides breathing room.

Diversifying revenue streams, such as introducing maintenance contracts alongside product sales, can smooth income across the year. Regularly reviewing pricing to reflect market changes ensures that margins stay healthy.

Finally, maintaining a good relationship with your bank or finance provider can give access to overdraft facilities or invoice-factoring services when you need an extra boost.

By taking these steps, businesses can both ease immediate pressures and lay the groundwork for stronger, more predictable cash flow in the years ahead.

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