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Cash is the lifeblood of your business. It enables you to pay the bills and keeps your business operational. But at times, cash can run short, jeopardizing the business’s viability. It’s not always because of poor sales. You may be in an expansion phase and need additional cash reserves to cover new equipment, staff, and infrastructure, which current profits cannot cover.

Here are some strategies to keep your business cash positive and ensure your business remains viable:

Shorten your cash cycle

This is the time it takes from you doing the work to getting paid. The shorter the time, the faster the cash comes into your business. The best-case scenario is to get paid immediately.

However,  for any B2B product or service, you’ll usually invoice and then wait for payment.

You should:

• Try and get paid immediately by generating an invoice straight after a job has been completed so your customers can pay on the spot. It means you’re not waiting till the end of the month for the cash to show up in your account.
• If you still need to invoice, do it early. Don’t wait for the end of the month. Provide incentives to your customers to encourage them to pay early such as discounts for early payment.

When you shorten your cash cycle, you reduce the time between completing work and receiving payment, helping to ensure a steady cash influx and reduce financial strain on your business.

Request progress payments

When negotiating new contracts with customers, be aware of setting payment terms that help your cash flow, such as requiring deposits or progress payments.

• Ask for prepayments or progress payments for long-term contracts.
• Include a regular timetable for the customer to pay invoices as part of any agreement.
• Agree on clear milestones for completing the work to reduce the risk of the customer disputing any invoices.

Being paid throughout the course of a project keeps your cash flow consistent, enables you to pay your bills regularly, and makes sure you get paid for the work you’ve completed.

Cut unnecessary costs

There will be expenses in your business that you could do without and now is a perfect time to see what you can cut. Audit your expenses to identify costs you no longer need or could negotiate better terms on, such as:

• Subscriptions to software you no longer use that are costing you money each month.
• Fixed service plans you could switch to a lower rate if you don’t need all the functionality.
• Excess inventory that you’re either paying money to store, or you could sell and not replace.
• Ineffective advertising costs if you’re unsure if they relate directly to sales.
• Review outsourced services regularly and compare their cost against internal delivery, such as cleaning, marketing, or warehousing.

Go through your last few months of invoices and credit card statements (yours and your employees’) to see what could be eliminated entirely or reduced to save you money.

Improve your margin

Two of the best ways to generate a better margin are to:

• Lower your costs. Regularly compare your budget with actual cost figures and frequently check the pricing offered by alternative suppliers. Make a note to re-negotiate costs with major suppliers yearly, and be aware that smaller costs can either slowly creep up over time, or there are better deals to be had.
• Increase pricing where you can. It can be a bit scary to consider raising prices, but only if you assume your target market is price sensitive and your only goal is to be a price leader. Market research will help you determine the actual price tolerance of the target market for your product or service and what their alternative choices are.

Costs and pricing strategies are the fundamentals. Once you’ve acted for each, you can then look at other ways to improve your cash flow.

Manage payment terms responsibly

Make full use of the payment terms agreed by your suppliers. Maintain good relationships with your creditors. If you have cash flow problems, be upfront with them and work with them to figure out ways to pay your debts more easily. In most cases they’ll do what they can to help you, just as you would if one of your customers had trouble in paying by the deadline, such as:

• A repayment schedule over a longer period.
• Pay monthly retainers or part payments as you go.

Reduce the chance of bad debts

Offering credit is often convenient and can help retain your best clients, but make sure you minimize all the potential hassles and risks that come with it:

• Always have customers sign your credit policy. It doesn’t matter how trustworthy you think your customers are, they still need to sign on the dotted line so that your terms and conditions are clear.
• Have minimum and maximum credit terms.
• Be aware of how to reduce the risk of fraud.
• Set up a debt management calendar and keep on top of debtors with repeat meetings and reminders.
• Use accounting software to red-flag late payers and follow up immediately. Pay close attention to large outstanding invoices as they draw near, and keep your ear to the ground about the financial health of your customers.

Know your legal rights in collecting debt, get legal advice, and consider collection agencies if the worst happens and the customer refuses to pay.

Next steps

• Complete a cash flow forecast to determine how much time you have left until you’ve run out. Use this time to act.
• Make sure your invoicing systems are efficient, and there are minimal bad debts.
• Charge deposits or progress payments on your work.
• Focus on sales and marketing to tip more cash into the top of your funnel.

Improving cash flow is essential to maintaining a healthy and sustainable business. Taking proactive steps to manage cash flow will help safeguard your business’s future and position it for long-term success.