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10 tips to stay on top of your cash flow

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Cash flow is one of the biggest challenges facing small businesses. According to a 2020 article by AsiaOne, cash flow problems is one of the top five reasons why some businesses fail.

So how can your business help improve its cash flow? Here are ten highly effective, practical tips.

1. Set up a credit control system

A credit control system isn’t as complicated as it sounds. It’s essentially about creating a system which gives customers the convenience to pay later depending on their credit rating, as well as ensuring all payment details are accurate.

2. Forecast sales

Forecasting sales allows businesses to predict their sales cycle so they can prepare for cash flow peaks and troughs. Forecasting is especially important during uncertain times such as recessions of the current pandemic. To prevent further exacerbating cash flow problems, businesses should take a cautious approach when forecasting sales, rather than being overly optimistic.

3. Cut unnecessary expenditure

Businesses should have a hawk’s eye view of all their expenditures. They should know exactly where their money is going to make sure they’re not overspending and are getting the best value for their dollar.

4. Cultivate a good supplier relationship

Maintaining a good supplier relationship means offering room for negotiation on payment terms. This is especially useful when dealing with bulk orders, as working on a regular payment plan allows businesses to hold on to their money longer and regulate cash flow.

5. Stay on top of inventory

Your costs increase when you hold on to unsold inventory. Monitoring current stock and only re-ordering when necessary is essential. Focusing on stock which moves quickly, as well as selling slow-moving or outdated stock at a lower price, helps clear up storage space and minimise unnecessary costs.

How can Sage accounting solutions help your small business?

Is your business interested in making the transition from manual accounting processes to automated software? Discover how you can choose the right accounting software with Sage.

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6. Ensure sufficient liquidity

While it may be tempting to splurge on the latest ‘in’ products, businesses should think wisely before making high cost purchases or investments. By avoiding these kinds of purchases, a business will have more liquid cash available that might come in handy during unforeseen circumstances. Having sufficient cash reserves to cover your company expenses for three to six months is a good benchmark.

7. Be on good terms with lenders

Ensuring your accounting and bookkeeping are up to scratch, and having honest conversations with your lenders about repayments, makes it easier to borrow or ask for larger loans in future.

8. Utilise invoice discounting

Invoice discounting, where a third party ‘buys’ your invoice and releases cash based on the invoice value, may be a good option for growing businesses (such as startups) which often require more liquid cash.

9. Spot any warning signs

A decline in turnover, customers who take longer to pay, recurring penalties for late payments, and being unable to pay suppliers on time are all signs of poor cash flow.

Businesses should be aware of these early warning signs and make efforts to increase their working capital before they become overburdened by debt. The best way to spot these warning signs is to cultivate a close relationship with your customers and work with them to achieve a win-win situation.

10. Be realistic about your business

Sometimes, businesses need to take a step back and review their operation models. If cash flow problems are becoming the norm rather than the exception, businesses need to evaluate the factors causing this.

Are sales targets not being met, or are products overpriced? Businesses need to objectively review their operations and possibly rethink their operations if the current model isn’t working.

How can Sage accounting solutions help your small business?

Is your business interested in making the transition from manual accounting processes to automated software? Discover how you can choose the right accounting software with Sage.

Discover More

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