Assessing your business cash flow is essential to ensuring the financial health of your company.
Published 9th February, 2023
There are many reasons why it’s important to manage cash flow. You might want to free up cash to support growth and expansion plans into a new market. Or you see some bumps in the road that you’d like to prepare for financially.
Regardless of your motivation, good cash flow management is an essential part of running a healthy business. In fact, cash flow mismanagement can lead to negative cash flow* which can quickly halt plans for growth. It’ll also make overcoming business obstacles extremely difficult, especially on a global scale.
*Negative cash flow - When a business spends more money than it makes during a specific period.
But all hope is not lost! Applying various tactics to your business spending habits can make all the difference. Ultimately, it’s about controlling your spending and regulating your income.
Read on to learn our 5 ways to improve your cash flow.
Table of contents
- Cash flow forecasting
- Consider leasing instead of buying
- Reduce your spending
- Experiment with your prices
- Stay on top of late customer payments
An essential part of running any business is creating an accurate cash flow forecast. This allows you to take stock of all your income and expenditures on a weekly, monthly, quarterly, and yearly basis.
Based on past business performance, you can use forecasting to estimate your financial performance for the future and have a better understanding of your net cash flow (calculated by taking your company's total cash and subtracting your total outgoings or liabilities).
There are many ways of building a cash flow forecast and several metrics you can look at. A key distinction though is the difference between operating cash flow and free cash flow.
Operating cash flow measures your company’s financial performance and represents the amount of cash generated by your normal business operations. Free cash flow, on the other hand, represents your company’s financial performance after accounting for purchases of assets like equipment or other capital expenditures.
Both have their own purpose and it’s important to consider both when forecasting your company’s cash flow.
There are many cash flow forecasting solutions out there like Futrli, Float, and Fluidly. To get you off to a flying start though, you could always use our Cash Flow Forecast template! Here you’ll find everything you need to get started. There's even a How-To video guide so make sure you check it out!
Another way of improving cash flow is to consider leasing. Every new hire you make requires new purchases so they have everything they need to do their job. Depending on your business, that can be anything from computers to business supplies and machinery.
Although leasing may seem counterintuitive as it costs more in the long run, it allows you to maintain a steady cash flow for your day-to-day operations.
There are many leasing companies out there to choose from so you’ll have no shortage of choice. But you could also consider purchasing through a company that offers invoice purchases.
For example, Two offers interest-free purchases on invoice with terms, giving you the flexibility to purchase what you need and pay in instalments.
Reducing your business spend is perhaps the simplest way of improving cash flow. Cutting unnecessary costs is a good practice regardless of your business size. But it requires some careful analysis.
For larger companies, this is especially important because it can be difficult to keep track of the various subscriptions or tools you use.
Do you pay for subscriptions but don’t use them that much? Are you paying for expensive phone plans that aren’t being utilised? Could you achieve the same outcome more cheaply or without any cost at all?
Asking yourself these questions will allow you to identify which costs can be reduced straight away. But think carefully about it. You don’t want to cancel something that your business really does need.
Another way to improve your cash flow is to take a close look at how much you charge for your products or services. The goal here is to strike a balance between remaining competitive while being fairly compensated for your hard work.
Pricing low may attract more customers but you run the risk of missing out on higher profits because your buyers may be happy to pay more. Similarly, pricing too high could discourage potential customers from buying from you.
Take a look at your competitors and compare their pricing models for similar products or services you offer. This will give you a good idea of the right price for you.
According to ibi research, invoice payment is the most popular payment method in the B2B sector, with 95% of B2B buyers preferring this option when shopping online. Offering this payment method to your business buyers therefore is a must. But it doesn’t come without its challenges.
Managing invoice payment in-house can be tedious and often, late payments for invoices result in less working capital for you. It’s important you communicate regularly with your customers to ensure they pay on time. This can be done via email, phone calls, or other communication channels.
Alternatively, you could use a B2B payment solution. Two allows you to offer your online and offline business customers purchases on invoice with flexible, interest-free credit - without the added risk or need for invoice factoring.
Two also reconciles payments for invoices and tracks late payers, so you can say goodbye to chasing late payments. That means you get paid upfront instead of waiting until the end of the invoice term. This is why Two is a great solution for managing and improving cash flow!
But don’t just take out word for it. Check out how this vegan cheese company streamlined their B2B sales and cash flow operations!
Two - The Complete B2B Payment Suite
Selling B2B with Buy Now, Pay Later can be incredibly complex. But it doesn’t have to be. With Two’s B2B payment suite, you can increase conversion rates and average order value while eliminating admin and offsetting credit risk.
Whether you want to supercharge your B2B e-commerce checkout for guest purchases, optimise your trade account with frictionless onboarding, or offer B2B BNPL on all sales channels - Two is here to help.
Two’s payment technology enables businesses across all industries to offer purchasing on invoice, providing a frictionless checkout experience with instantly approved credit. Our revolutionary B2B solutions simplify the payment journey so businesses can access working capital and increase B2B sales while reducing time consuming operational work.