19 Strategies To Boost Cash Flow and Improve Working Capital Management
Content
Reviewed by: Bruce Sayer
Effective cash flow and working capital management are pivotal for sustaining operations, fostering growth, and ensuring long-term viability. Here are 20 strategies to enhance your organization’s cash flow and working capital management:
1. Proactively Develop Your Financial Management Arsenal
The best time to solve a cash flow problem is before it happens. If your business is running smoothly or is in the beginning stages of production, now is the time to build out your financial solutions arsenal.
Actively seek out a financial advisor and a lender with a variety of financial solutions available, including–most-importantly–commercial lines of credit and asset-based financing. Setting up these financial solutions when your numbers are good, you can avoid the risk of rejection later. This will also provide you with resources to fall back on should you experience any growing pains associated with starting a business.
2. Accelerate your Receivables
The faster you can get money flowing into your business, the quicker you’ll resolve any cash flow issues. There are several other tactics you can employ to speed up receivables:
- Request Deposits or Partial Payments: Encourage new customers to make a deposit or partial payment upfront, rather than waiting to bill the full amount after delivering your service or product.
- Invoice Immediately: Shift your receivables management to invoice clients right after providing a service or delivering a product, rather than batching invoices for a specific day each month. The sooner an invoice is sent, the faster you’ll get paid.
- Increase Invoice Frequency: Don’t wait until a project is fully complete to send an invoice. Bill your clients weekly or bi-weekly for the work done so far.
- Prioritize Overdue Accounts: Actively pursue clients with overdue payments. Even partial payments can make a difference during a cash flow crunch.
- Leverage Accounts Receivable Financing: Sell outstanding invoices to a third party at a discount for immediate cash, bypassing the usual wait for customer payments.
- Expand Payment Options: Make it easier for clients to pay by offering a variety of payment methods, including credit cards, mobile payments, and electronic transfers.
Implementing these strategies can significantly shorten the time it takes for cash to enter your business, easing cash flow pressures and supporting financial stability.
3. Maintain An Updated Cash Flow Plan
Develop a cash flow forecast to anticipate inflows and outflows, allowing for strategic financial planning and proactive management of potential shortfalls. It’s always recommended that business owners keep their cash flow management plans current. Engaging in scenario planning assists in identifying immediate needs and anticipating future financial requirements. Having a precise financial forecast, along with a strong relationship with a lender or financial advisor, enables owners to make informed decisions for their businesses and leverage a wide array of shorter-term working capital solutions such as asset-based financing.
4. Extend Accounts Payable
Negotiate longer payment terms with suppliers without compromising relationships or incurring late fees. This will keep cash longer in your business while fulfilling payment obligations.
5. Decrease Liabilities And Improve Assets
To enhance cash flow, focus on minimizing liabilities and bolstering your assets. Even in prosperous times, cutting costs and expenses should remain a priority. The objective is to bolster your cash flows. Assess your liabilities and convert them into assets that yield cash flow. Consider leveraging idle assets like unused land or vehicles to boost short-term cash flow through asset-based lending solutions. Additionally, implementing sales promotions can attract new short-term customers, further improving your financial liquidity.
6. Embrace Technology
Implementing the right technology can automate tasks, improve efficiency, and ultimately save money. This could include adopting cloud-based software to reduce IT infrastructure costs or using project management tools to decrease project completion times.
7. Consolidate Debt
Refinance high-interest debt into a single, lower-cost loan to reduce monthly payments and improve cash flow.
9. Renegotiate Contracts
Periodically review and renegotiate contracts with vendors, suppliers, and service providers to ensure you’re receiving the best terms and prices. Emphasizing the negotiation of payment terms with vendors is a key strategy to optimize cash flow. Through careful management of payment terms, cash shortages can be avoided, and discounts for early payment can be leveraged.
10. Optimize Pricing Strategy
Regularly assess your pricing model to ensure it reflects market conditions, costs, and consumer demand, thus maximizing revenue.
11. Adopt Remote Work & Reduce Travel Expenses
If possible, adopt a remote or hybrid work model to reduce office space requirements and related expenses such as rent, utilities, and office supplies. Leverage video conferencing tools to reduce the need for travel. When travel is necessary, look for cost-effective options and plan in advance.
12. Outsource Non-Core Activities
Consider outsourcing functions that are not central to your business’s core offerings, such as administrative tasks, IT support, or janitorial services, to reduce the expenses associated with full-time staff.
13. Build Cash Flow Management into Your Budget
Smart business owners proactively incorporate cash flow contingency plans into their yearly budgets, whether anticipating a cash flow deficit or surplus. Planning for cash flow involves setting aside funds in a “rainy day” business savings account or pinpointing expenses that can be reduced and assets that can be sold if a cash flow shortfall arises.
View your business’s budget as a comprehensive plan for spending, saving, and managing cash flow over the next year. While your budget may focus on total costs rather than the timing of each, strategically planning for when expenses and revenue will occur can enhance your spending efficiency and cash flow management for the year.
Furthermore, it’s crucial to routinely review your budget throughout the year, comparing planned figures against actual financial performance using budget reports. This practice ensures you remain aligned with your financial goals and allows for timely adjustments to your budget as needed.
14. Cut Unnecessary Subscriptions and Services
Review all subscriptions and recurring services regularly to cancel those that are no longer necessary or do not provide sufficient value.
15. Optimize Tax Payments
Work with a tax advisor to explore tax credits, deductions, and optimal payment strategies that conserve cash.
16. Implement Customer Loyalty Programs
Enhance customer retention and repeat business, which is more cost-effective than acquiring new customers, thereby improving steady cash inflow.
17. Manage Growth Strategically
Scale operations judiciously, ensuring that growth efforts are supported by adequate cash flow and working capital.
18. Diversify Revenue Streams
Explore new markets, products, or services to create additional sources of income, reducing dependency on a single revenue stream.
19. Educate Your Team
Foster a culture of financial awareness within your organization, ensuring that all team members understand the importance of cash flow and working capital management.
Conclusion
By implementing these strategies, business leaders can significantly enhance their organization’s financial health, ensuring resilience and agility in a competitive landscape. Remember, consistent review and adaptation of your financial management practices are key to navigating the complexities of today’s business world successfully.
ABOUT eCapital
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.
James Poston
James is an experienced product expert in receivables financing, trade finance including purchase order financing, and asset-based lending. In his role, he oversees eCapital’s sales strategy by driving business development and creating unified revenue generation processes across our organization. Utilizing his experience in developing strategic relationships and nurturing strong networks, James is positioned to expand our company’s market footprint and industry associations.
Prior to joining the eCapital organization, James served as Executive Vice President and Sales Director for Bibby Financial Services Canada. During that time, he participated in all aspects of the organization including operations, credit and finally business development where he was named a 40 under 40 Award recipient by Secured Finance Network.
James is a Chartered Professional Accountant and Certified Management Accountant and holds a Bachelor of Economics degree with concentrations in international relations and political economy from McGill University.