How to Improve Cash Flow: 13 Top Tips for your Business

how to improve cash flow

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Struggling to stay in the black? Read our 13 simple tips to boost your cash flow, and watch your business grow


Running a business is like walking a tightrope. You’ve got to juggle overheads and expenses, all while keeping a wary eye on your income. It’s a delicate balancing act, and staying upright often means long hours spent chasing clients for payment, or uncomfortable conversations about extending your overdraft

Unfortunately, the task of maintaining adequate cash flow is one in which the majority of businesses tend to drop the ball. 

That’s right – cash flow difficulties are a big deal for small UK business owners. 57% of them have faced cash flow problems, while one in seven have been left unable to pay employees. Cash flow is such an issue that it often forces small UK businesses to turn down work, costing each one an average of £26,000 a year.

So, how do we stop these trends? How can your business improve cash flow, and keep a smooth, stable source of funds coming in? 

Well, as it turns out, there isn’t just one answer to that question… there are 13!

We’re taking you through our 13 actionable tips for improving your cash flow. Some are long-term solutions that’ll require commitment and planning, while others you can make progress on today. Read on, and get inspired.


What is cash flow?

First things first – what is cash flow?

The dictionary defines it as “the total amount of money being transferred into and out of a business, especially as affecting liquidity”. Richard Branson puts an even more illuminating spin on it:

Never take your eyes off the cash flow, because it’s the lifeblood of your business”.

Cash flow is, essentially, the amount of money being transferred in and out of your business. It’s the ebb and tide of your takings and outgoings – that steady financial pulse keeping your SME ticking over. It’s also what accounts for whether you’re using a black or a red pen at the end of the month.

So, why is cash flow important?

how to improve cash flow

Cut yourself a slice of that pie: maintaining a steady cash flow can be hard when you’ve got a lot on your plate


Why is cash flow important for small businesses?

To answer this, let’s turn to the cold, hard facts provided by the Office of National Statistics. They tell us that after five years, only four out of ten small businesses in the UK are still trading. After ten years, that number drops to a third. That’s two thirds of all new businesses in the UK just… failing.

But why? What’s making our sea of small, independent businesses flounder and flop?

Cash flow.

Yes, those two words again. Cash flow is directly responsible for up to a whopping 90% of business failures in the UK. Startups and SMEs across the country are going bust, and it’s happening not because of bad business plans, a lack of ingenuity, or increased competition.

It’s happening, in large part, because of a lack of cash flow. 

There are a few things that can impact negatively on your cash flow. Having too much money tied up in stock, high supplier prices, and lax invoicing habits are all culprits. Late payments take their toll, too, with small businesses currently chasing almost £15 billion in unpaid debt.

All businesses need cash flow. Without free cash lying around, you won’t be able to pay your overheads. Your staff will leave, and your suppliers will start charging you for late or missing payments. Debt will rack up, and you could be forced to turn down business, because you lack the funds to kickstart work on new projects.

Don’t get caught out by a lack of cash liquidity. Dive into our list below to skip to a specific tip, or keep scrolling to learn how to improve your cash flow.

Helena and Greg: cash flow case studies

Still struggling to visualise exactly what good (or bad) cash flow looks like for small UK business? Take a look at our case studies below. Which one sounds more familiar?

What is a healthy cash flow? 

helena cash flow case studyHelena runs a small business from her living room, making organically-sourced, sustainable leather goods for independent clients. Her main expenses are buying the leather, although good relations with her supplier and bulk purchasing deals take a lot of the sting out of the outlay.

Helena asks for pre-payment before she begins an order, so rarely struggles with late payments or unreliable customers. Helena then funnels any time she would have otherwise spent chasing unpaid invoices into growing her social media presence, and making her website look nice.

Helena also puts a portion of each payment she receives into a savings account, so there are always a few pennies available for a rainy day. Helena is an example of a business with good cash flow.

What is an unhealthy cash flow?

greg cash flow case studyGreg is a freelance web designer working from a small office in Hackney, London. As well as paying rent on his office space, Greg outsources a lot of work to other agencies and freelancers. He also pays for subscriptions to several online tools he needs to do his job.

Since he began taking on more ambitious projects for bigger clients, Greg finds it often takes a long time to get paid for jobs – sometimes months. Yet his freelancers want paying, fast – and rent doesn’t wait for anybody. 

Greg has also had to start turning down jobs – he simply doesn’t have the available funds to put a proposal together and gather the required materials. Greg has assets, yes, and lacks neither talent nor clients – but he is lacking one crucial aspect possessed by all successful business.

Cash flow.

Luckily, there are a few things Greg – and you – can do about this. Let’s take a look at what they are.


How to improve cash flow: 13 top tips


1. Raise your prices

Three words with the potential to strike fear into the hearts of business owners across the world. We get it – raising your prices is a strategy that doesn’t come without risk. But if you’re short on capital and need a quick cash hit, it’s a risk worth taking.

Remember – you’re in business to make a profit, not just to make sales. Don’t undervalue the hard work you and your staff do. Find out what your competitors are charging, and consider how time might have inflated market rates, and hiked the costs of your operating expenses. 

Has there been a boom in demand for your products or services? A change to government policy that affects your industry? If you look close enough, there’s usually a good reason to dial up your fees a bit.

Also, having prices that are too low could be hurting your image, devaluing your products and sending the wrong message to quality-seeking clients. If you’re struggling for cash flow, see if there’s any room to raise your prices – you might even be surprised at how much people are willing to pay.


2. Dominate your invoicing

Sending invoices is integral to the way most small businesses operate. But how you send them can also have big implications for the health of your cash flow. 

Firstly, make sure you’re sending your invoices quickly. The sooner you send them out, the sooner the payment comes in. Secondly, ensure your invoices are free of mistakes, which could cause a dispute over the payment and lead to delays and frustration.

Thirdly, don’t let a payment fall through the cracks – send regular reminders to customers that are yet to pay up. A few days before the invoice is due is a good time for a gentle nudge, as is the due date itself. Is the cash is still outstanding after the due date? Give them another call, because you never know – your invoice may have just ended up in the wrong pile on an over-cluttered desk.

If you’ve tried all this and are still struggling with late payments, consider your invoicing terms. Is a 30-day payment window not cutting the mustard? Shorten it. You can also think about imposing penalties for late payment – just make sure you’re upfront about these, and that they’re consistent across your client base. 

On the flipside, you can also incentivise your clients to pay early. Human nature tells us that discounts are good. So, offering them to your less time-conscious clients should result in quicker payments, and a steadier, more satisfying cash flow to boot.

If you’ve tried all of the above, and are still having trouble bridging the gap between payments, give invoice factoring a go. We go into more detail further down the page (tip 10!), but it basically amounts to a quick, convenient form of funding that’s leveraged against the money that’s tied up in your unpaid invoices.

To recap:

  1. Send your invoices as soon as possible
  2. Double-check your invoices for errors
  3. Send regular reminders to late-paying clients
  4. Impose penalties for late payments
  5. Incentivise early payments with discounts
dominate your invoicing

The invoice of reason: how you invoice your customers is crucial to improving your cash flow


3. Liquidate old stock

If you’ve been in business for a while, there’s almost certainly a backlog of equipment sitting around somewhere, or stock you couldn’t (or just didn’t) sell. 

Surplus stock is fine, but if it’s now surplus to requirements, then you should think about getting rid. Keep things fresh, clear some room, and get a quick cash injection by liquidating (that is, selling) some of that stuff your business no longer needs.

This also works if you trade in season-specific items. There’s no point keeping winter stock around when it’s scorching outside, especially if you need fast cash. Be ruthless, draw up a list of everything you could feasibly do without, and sell, sell, sell. 


4. Lease your equipment

While we’re on the topic of equipment, ever thought about leasing it? Not having to actually buy the things you need to run your business can save you a big chunk of capital. 

Sure, you won’t have the advantage of owning the equipment as a fixed asset. But not having to spring for a large, upfront cost is a huge plus. Instead, you’ll pay smaller, regular payments for the same equipment – thus freeing up some of that all-important cash flow.

Did you know?

Cash flow issues are more common than you think. A report by Wakefield Research in Autumn 2018 surveyed 3,000 small business owners across the UK, US, Canada, Australia, and India to get the lowdown on their cash flow situation. The research found that:

  • 66% of small business owners reported payment processing time as having the biggest impact on their cash flow
  • 44% reported late customer payments to be another big obstacle to getting paid
  • 34% said that not getting paid by clients within the terms of the specified payment system had the biggest impact on cash flow
  • 31% estimated it takes more than 30 days to get paid
  • 28% found insufficient customer funds to be a significant blockage to receiving payment
  • 29 days was the average wait for payment from customers

It’s not just you, then – having to suffer lengthy waiting periods for payment is stymying the cash flow of businesses the world over. How do you combat this, then, and make that wait a little more bearable? Skip to our section on invoice factoring to find out.


5. Harness the power of CRM

If you’re not already using a customer relationship management (CRM) system, well… you probably should be. CRM software provides you with a central hub for managing and contacting your clients. It streamlines your workload through the logging of calls and emails, helping you keep track of who you’ve contacted, and when.

CRM also integrates with the key apps your business uses every day. For example, it can work alongside your current invoicing software and accounting programs, simplifying how you run your business.

A CRM makes it easy to manage your clients, and review who you’ve chased for payment and who you haven’t. You can also use CRM software to create targeted marketing campaigns, and re-engage your existing client database with juicy deals.

CRM systems require no installation either, and can be set up with little time or effort. Better still, most CRM systems are available at a low cost. Some CRM providers even offer free versions with limited features, so your cash flow won’t need to take a hit before it improves. 


6. Invest in your own business

It’s true – sometimes you do need to spend money to make money. Though it can require a significant outlay at first, investing in your own business (if done well) can have big benefits.

And there’s no better way to invest in your own business than by hiring someone new.

Hiring staff not only injects more valuable skills into your business, but it also provides a fresh pair of eyes. A new starter (particularly a more experienced hire to work in the operational side of your business) can help evaluate how things are done, and identify room for improvement and cost-cutting. It’s no quick fix, but it’s a sustainable way of approaching your cash flow issues, which can also help grow your business.

invest in your own business

Hiring and inspiring: a fresh face could be just what you need to bring new skills and perspective to your business


7. Boost customer loyalty

Sometimes, improving cash flow isn’t about spending big on flash new marketing campaigns to draw in hordes of new customers. Often, it’s just about making sure your existing customers keep coming back for more. 

Engaging (and re-engaging) your customers is something all successful businesses do well. But how do you follow suit? 

Well, the answer again lies in those three letters – CRM (customer relationship management). CRM software allows you to track your customer’s transactions, and glean crucial insights into their spending habits. You can then leverage this data to provide them with targeted deals and discounts, to hook them back in and sell to them again, again, and again.

Sainsbury’s Nectar rewards system, the Tesco Clubcard, and Boots Advantage are all highly successful examples of loyalty schemes done right. And if you’ve ever cashed in air miles or benefited from an Amazon Prime membership, you’ll have seen first hand how effective a CRM can be in driving happier, more loyal customers.

For more info, check out our guide to CRM and customer loyalty schemes. And don’t just take our word for it – there’s even scientific research supporting the relationship between loyalty schemes and customer spend and retention.


8. Cut out unnecessary expenses

Improving cash flow isn’t about bending over backwards looking for new sources of income. Nope – often, it’s as simple as cutting back on a few overheads

We’ve all ended up shelling out for a gym membership we never used, or a streaming service we didn’t have time to enjoy. Costs at your business are the same – not only do they creep up, but they add up, too. By getting rid of a few, you can give your cash flow a big boost.

Grab your accountant and a cup of coffee, and go through your expenses with a fine tooth comb. Are you paying for anything that’s not absolutely necessary? Could anything be sourced for cheaper? Be ruthless, and draw a line through anything your business could live without.


9. Form a buying cooperative

The solution to cash flow woes isn’t always found by looking within your business. Often, you’ll need to look outwards –to your relationships with suppliers, as well as competing businesses. 

Team up with fellow businesses in your industry to form a buying cooperative. By pooling your collective orders, you can buy in bulk, which will let you negotiate the best wholesale rates from a range of suppliers. Try reaching out to similar businesses to work together. What have you got to lose?

And, when it comes to your suppliers, make sure to maintain good relations with them. It’s little effort on a day-to-day basis, but can lead to big savings in the long run.

form a buying cooperative

Keep your friends close, and your enemies closer: Form a buying cooperative with competitors and save money between you


10. Factor your invoices

When it comes to the best finance options for small UK businesses, it’s loans, credit cards, and overdrafts that typically hog the limelight. But there’s another form of funding that’s inexpensive and flexible, yet gets far less attention – invoice factoring.

Invoice what?

Put simply, invoice factoring is the process of selling your unpaid invoices to a third party (the ‘factor’). The factor can be a bank such as Lloyds or Barclays, or an independent company (see our reviews on Optimum Finance and Close Brothers for more info). 

The factor pays you the majority (usually around 85% to 90%) of the invoice’s worth, and takes charge of chasing (and receiving) payment. When the invoice is eventually paid by your client, the factor releases the remainder of the invoice’s value, minus a small fee for its services. 

Here’s a quick overview of how the process works.

how invoice financing companies work

Invoice factoring is one of the most effective forms of finance for improving cash flow. Why? Well, it’s quick – you’ll often get cash for your unpaid invoice within 24 hours of raising it. Also, by outsourcing the responsibility for chasing the debt, it frees up more of your time to get on with growing your small business

Factoring is an ideal solution for bridging that seemingly endless wait for invoices to be paid. Having consistent access to funding means you can better plan for the future, and encourage quicker payments from your customers. But ultimately, invoice factoring presents an affordable, simple, and fluid form of improving your cash flow.

Click one of the thumbs below to fill out our free quote-finding webform. It takes less than a minute, and you’ll receive quotes from several top invoice factoring companies in the UK. Give it a go, and you never know – better cash flow could be just round the corner.

Save by Comparing Invoice Factoring Quotes from Leading Suppliers

Have you used Invoice Factoring before?


11. Conduct customer credit checks

It’s bad news, but every small business owner in the UK will encounter it at some point – a customer who doesn’t settle their bill. Whether this is because they can’t pay or won’t pay, the good news is that you can take steps to mitigate the impact this will have on your cash flow. How?

Firstly, consider checking the credit history of your customers in advance. One way of doing this is through checking out status reports from credit agencies. This will cost you, but you’ll receive full financial results, along with the payment experience of other suppliers, and a recommended credit rating. 

In other words, if they’re bad debtors, you’ll know about it.

Secondly, many invoice factoring deals offer the option of debtor protection. For a small additional fee, your invoice finance provider takes responsibility for the debts owed to your business. That means you won’t ever be out of pocket – even if your clients never pay up. 


12. Open up a business savings account

Okay, so this one’s not a quick fix. And locking money up in a savings account when you need a quick cash injection does seem counter-intuitive. However, squirrelling some of your business’ savings away in a bank account is a sustainable, long-term option for improving your cash flow

Not only will you get interest on what you’re saving, you’ll also have a handy cash buffer tucked to the side for when you need it the most. 


13. Get a business loan

Perhaps the most obvious way of remedying a cash flow shortage comes in the form of a business loan. We all know what these are – a lump sum of cash released by a bank or independent company, which you’ll need to pay off with interest.

Business loans are a common form of finance for SMEs in the UK.  With both short and medium-term repayment terms available, they can offer flexibility, as well as a quick cash injection. And with fixed interest rates available, you’ll know exactly how much you’re expected to pay, and be confident the rates won’t increase.

The drawback? After the financial crash of 2007 –2008, business loans have been much harder to get a hold of. Lenders have strict requirements for businesses seeking funding – especially if it’s a startup that’s looking for the loan. On top of this, it can be hard to choose the right business loan provider, and to be sure you’re getting the best deal. 

That’s where we can help. Simply take a minute to fill out our free quote-finding webform. You’ll receive quotes from top business loan suppliers, and can compare and contrast at your leisure. 

Top tip:

A secured business loan can be a feasible option for small businesses and startups. Because it utilises a business’ assets as collateral, it’s a more accessible form of funding for companies that would otherwise be unsuitable for finance. 

The interest rates on these loans are also lower than those associated with unsecured business loans, which makes them a more affordable form of lending for small businesses.


Case study: How a small London-based business manages cash flow

abi hardy personal trainerSo, how do real SMEs and sole traders maintain cash flow? We took to the small business space to ask UK-based entrepreneur Abi Hardy about how she manages her day-to-day cash flow. 

Abi Hardy, Abi Hardy Personal Training

What are the biggest issues you’ve faced since you began working for yourself?

Balancing my income with my overheads was probably the biggest hurdle I first faced when starting out in business. As well as paying rent to the gym where I train, I travel all over London, and the transport costs add up.

I also outsource most of my social media and website development, which are ongoing, sneaky costs that come back around sooner than you think. It became clear very early on that maintaining a steady source of cash flow had to be my top priority.

How do you stay on top of your cash flow? 

For me, the key is to stay on top of my invoices. It’s the main way I receive payment from clients, so if I don’t do it properly, it’s bad news! I usually invoice for the day’s sessions as soon as I get home. The sooner I send them, the sooner they get paid.

I also set terms of two weeks for new clients, so I’m never waiting too long for payment. And, by giving my longer-term clients up to four weeks to pay, it helps build loyalty and trust.

I also found that using Salesforce CRM helped me stay on top of my workload. I only pay £20 per month for a basic package, but it lets me automate important tasks, and easily manage my calendar.

Salesforce also works with my invoicing software and contains all my client information, so I can do everything from one place – at home or on the go. 

I also store information about my clients’ preferred workout routines alongside their contact information within the CRM, along with any updates about their progress. 

Oh, and the system helps me stay on top of payment due dates, meaning I can send a quick email out to my more forgetful clients!

What’s your top tip for new businesses and sole traders?

Persevere, and don’t just do another job on the side just to keep the wolf from the door. Throw your whole self into growing your business – you’ll be more motivated, and it will pay off in the long run!

Also, remember that all businesses will need a leg up at some point. If you do rely on invoicing, don’t be afraid of using a factoring company to give you an initial boost. It helped me get past those tricky first couple of years of trading, and is much more flexible than a loan from a high street bank. 

Ultimately, though, my top tip would be to have fun! Going into business by yourself or launching a startup is one of the most ambitious things anyone can do in their life. Soak in the experience, learn all you can, and keep your eyes on the bigger picture.


Next steps

What’s next? Well, if you’re looking to improve cash flow, it’s time to put these tips into practice. Sure, some might not be suitable for you at this point in time. You may not be ready to get finance, or have the resources to make a new hire right now. 

But there’s plenty of things you can start doing right away to help improve your cash flow in the short term. Chase up those unpaid invoices, and start being firm (but fair) with payment terms and unpaid debts. And, for one of the quickest cash injections out there, have a think about whether invoice factoring is right for your business. 

That said, it’s a good idea to compare different invoice factoring services before settling on one – and that’s where we can help. Simply take a minute to fill out our quick quote-finding webform. Enter a couple of details about your business, and you’ll receive quotes tailored to your business, from several top invoice finance suppliers. It’s free, and always will be.

And if you’d like to open up some dialogue about cash flow – including its effects on businesses, the British economy, and your stress levels – drop me an email at robert.binns@mvfglobal.com. Let’s talk!

Rob Binns Writer

Rob writes mainly about the payments industry, but also brings industry-specific knowledge of CRM software, social media monitoring, and invoice finance. When not exasperating his editor with bad puns, he can be found relaxing in a sunny corner, with a beer and a battered copy of Dostoevsky.

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