When a business experiences cash flow pressures, the immediate reaction is often to look at where costs can be reduced. While reviewing expenditure is important, cutting costs is not always the best solution, particularly if it affects the quality of your products, services or ability to grow.
There is a well-known saying in business: ‘Turnover is vanity, profit is sanity, and cash is king.’ However, improving your cash position does not necessarily mean generating more sales, increasing prices or reducing expenditure. Often, the opportunity lies in how effectively you manage the money already moving through your business. Understanding your working capital cycle, improving payment processes, reviewing how you manage stock and customer contracts can all make a difference.
Make your working capital work harder
A common way to improve cash flow is to examine the timing of money entering and leaving your business. Your working capital cycle is the period between paying for the goods or services needed to deliver your work and receiving payment from customers. For example, imagine agreeing a £20,000 project that requires £10,000 of upfront expenditure. Although the project may be profitable, your business needs sufficient cash to cover those initial costs before receiving payment.
This is where reviewing customer and supplier payment terms becomes important. If your suppliers offer 30-day payment terms, there is little benefit in paying immediately unless there is a financial incentive. Instead, make full use of the agreed terms while ensuring payments are always made on time.
Equally, consider whether your customer payment terms could be shortened or whether deposits and staged payments would better align with project expenditure. Having these conversations at the beginning of a customer relationship helps establish clear expectations and avoids difficulties later.
It is worth also considering your supplier relationships. A trusted supplier who knows you pay reliably may be willing to offer more favourable credit terms. Sometimes, the flexibility provided by an established relationship can be worth more than a small saving from switching suppliers. Reviewing your working capital cycle can help identify practical ways to improve cash flow. Our business advisory services can help you assess your financial position and develop a plan to support your business’s ongoing performance and growth.
Improve invoicing and release cash tied up in your business
Getting paid promptly should be as straightforward as possible for your customers. Cloud-based accounting software, such as Xero, Sage or QuickBooks, can streamline processes by sending invoices directly to customers, including payment links and issuing automatic reminders when payments become overdue.
However, technology is only part of the solution. Business owners also need the confidence to follow up on outstanding payments. If your agreed payment terms are seven days, there is nothing wrong with following up on day eight. Consistency helps establish expectations and prevents late payments from becoming the norm.
Another area frequently overlooked is work in progress. Projects can become delayed because of internal processes, outstanding information or a lack of clarity about the next stage. Reviewing work in progress regularly helps identify what is preventing a project from reaching its next billing milestone.
For businesses holding physical stock, similar principles apply. Buying additional stock at a discounted price may appear attractive, but that stock represents cash that cannot be used elsewhere. Excess inventory also requires storage and risks becoming outdated or unsaleable. Maintaining appropriate stock levels and identifying opportunities to sell older products can release valuable working capital. Read our article on the key numbers every business owner should review monthly.
Create more predictable income and plan ahead
For service-based businesses, reviewing how customers are billed can improve cash flow consistency. Rather than invoicing a large amount when a project or annual service is completed, consider agreeing fixed monthly payments. This provides customers with more manageable expenditure while giving your business a predictable income stream. It also helps identify payment difficulties earlier, rather than discovering a substantial unpaid balance after months of work.
Regular pricing reviews are equally important. As operating costs increase, businesses should have the confidence to review their charges to protect margins, while remaining mindful of market expectations.
Seasonal businesses should also consider how income fluctuates throughout the year. Retaining cash during busier periods and exploring opportunities to generate revenue during quieter months can help maintain financial stability.
Ultimately, improving cash flow requires organisation, forward planning and a willingness to have conversations about money. Taking control of when money enters and leaves your business is important. Read our article on why profitable businesses run out of cash.
Our team supports businesses in understanding their financial position, identifying opportunities to improve working capital and making informed commercial decisions. If this article has made you realise that you need to review your payment processes, how you manage cash flow or that you need to plan for future growth, we can provide business advisory services tailored to your business.