Cash Flow - 26 'easy to apply' ways to boost your cash flow

FIRSTLY and IMPORTANTLY - You need to understand the difference between 'profit' and 'cash flow' - they are not the same. (see definitions at the end of this article)

Profitable businesses can, and do, go bust simply because they cannot meet their short term liabilities, often due to 'overtrading' and the consequent lock-up of working capital.  You can only pay your bills with money - not profit - and without money to keep your suppliers happy your business is effectively 'dead in the water'.

So,if you are anxious about meeting next month's payroll, under pressure from Revenue and Customs, or fending off supplier requests for payment, then you need to read on and find out how you can rapidly improve and turn around your cash flow.

1. Invoice as soon as possible

It may be obvious, but far too many (smaller) businesses fail to invoice promptly.  Whether through laziness, to busy working, or for whatever reason, they invoice at the end of the month, or indeed in the following months, for goods or services supplied earlier in the month. 

Your cash flow could be substantially improved by billing throughout the month, immediately as the goods or services have been delivered.  Also, for companies that have clients on retainers, there is no reason at all why you cannot bill on the first day of each month rather than the end of the month, thereby effectively accelerating  your cash flow by 30 days.

2. Get cash up front

Why not ask for payment 'before' you deliver, or 'on delivery', especially from new customers whom you don't know. Increasingly businesses are moving to 'cash up front' or 'part payment up front' before delivery as protection from bad debts, but it is a great way to boost your cash flow too.  And witness the mail-order companies and internet sales - they confirm their cash before dispatching the goods, the ultimate in cash flow status (especially if you are an agent and don't stock or buy the goods until needed).

3. Make friends with the accounts payable teams

Build strong relationships with the 'accounts payable' departments or person responsible in each of your clients so that you know their financial processes and payment terms inside-out.  Relationships do work, and the better the relationship, the more likely they are to respond to you, give you the information you need, and pay you on time.

4. Hire a great credit controller

In most businesses there is a need for a 'credit controller's role' - even if it's yourself, someone part time, or a full time employee - their job is to ensure that your invoices get paid on time, and this is critical in the battle to accelerate and maintain good cash flow.  Their approach needs to be friendly of course, but equally they must be persuasive and firm, and customers will, in the main, pay when asked nicely especially if you can offer a good reason.

Consider for a moment, a 60 day debtors list is twice your 30 day credit terms - ie twice as much money tied up in unpaid bills than you should have!   And, unbelievably, many businesses suffer 90 days credit and more - that's 25% of annual sales and vat - locked up!

5. Ask, otherwise you don't get

Many companies are reluctant to chase for payment, scared even, in case they upset their customers!  But your customers fully understand your credit terms and, on the contrary, are more likely to respect you for sticking to your principles.  They will, if you get into the habit of tracking and following up on your invoices consistently, pay you promptly and regularly.  And likewise, if you don't chase they will get into the habit of always paying late.

But do make sure you chase them by telephone, speaking to the right person, rather than by letter - credit reference agencies estimate that 'personal contact' is about 80% more effective than letters.

6. Divided they fall

Split disputed invoices - customers often use a dispute about one item on an invoice as a reason not to pay the whole invoice.  If so, credit the disputed invoice,  and then re-issue two new invoices separating the disputed items from those accepted!  That way you at least get most of your money into the system while you resolve any genuine problems.

7. Build rapport with your bank

Build a strong working relationship with your bank, always keeping them adequately informed.  This will help them plan, and thereby improve your chances of relying on them for short term overdraft facilities when needed to keep your business going.  Surprise them, and they become very unaccommodating.

8. Offer credit card facilities

Offering your customers the opportunity to settle by credit card not only removes the hassle of chasing up those 'lost in the post' cheques we keep hearing about, but shifts the lending by you to your customer's financial providers.  They pay you instantly, but get additional time to pay their credit card - a good all round solution, and a quick and easy way to accelerate your cash flow.  (Note also suggestions above about receiving payment by credit card 'before' delivery.)

9. Offer direct debits

Offer direct debits, if you can.  Although not always available, this is probably one of the more reliable ways to boosting and maintaining your cash flow, and it is helpful to both you and your customer.  It saves your customer the administrative burden of paying you, and you know you'll get your money on time, and this will help you in your financial planning.

10. Early settlement discounts

Offering a discount as an incentive to pay quickly usually works quite well, but a straight discount off the price is costly and eats into profit and should be discouraged.  But, by factoring in an increase in your prices with a discount for early settlement you can give the perception of a 'good deal' and very effectively boost your cash flow fairly quickly.   But be vigilant and very firm with customers trying to abuse the terms offered as some will inevitably pay late and still try taking the discount.

11. Reward early settlement

It might seem a bit trite, but offering to put the names of prompt payers into a monthly prize draw does work (provided the prize is a strong enough incentive).  An effective means of encouraging prompt settlement and better cash flow, it's also a bit of fun too.

12. Try 'e-invoicing'

'e-invoicing' can help you cut costs, improve efficiency, and stay on top of your cash flow.  Paper invoicing is increasingly inefficient, expensive, and can slow down your cash flow while it physically travels through the postal, purchasing and finance departments of your customers.  An e-invoice is there instantly, usually in the hands of the right person.  Experience, from those who have used e-invoicing, has shown that it can get you paid quicker, especially within the larger companies.  It goes without saying of course that the process needs agreeing with your customers beforehand, but it is happening more frequently now just as are electronic payments.

13. Credit check your clients

Giving clients credit is effectively 'lending' them your money.  Just as in obtaining a loan from a bank requires you being credit checked, so your clients should expect to be credit checked by you. 

Remember, the cost of a bad debt can be equivalent to having to sell another four or five times the same value simply to recover from that loss and stand still - how many companies can do that too often?

14. Learn to say “No”

Some sales are simply not worth doing - learn to say "no, you're not interested" (unless the terms can be improved of course).  Remember the old and well serving adage  “Turnover is vanity, profit is sanity, but cash is king.”  (Etch this gem in your business brain forever)

15. Special offers

Create 'special offers' and bundle 'packages' together to shift more stock and boost short term sales and cash flow.  Its amazing how well this can work when done at intervals - witness the seasonal sales by some of the major stores.  But, don't compromise on profit more than you have to.

16. Put up your prices

You might think this an impossible idea, but few customers will object to a small increase in price provided of course you continue to give them true value.  Consider, for one moment, the following calculation - if your business produces a 10% net operating profit, for example, a 1% increase in your selling prices will increase your bottom line profit by 10% - which in time will translate into additional cash.  And, by extrapolation, a 5% increase in price will put a 50% increase on your bottom line - and in time an even better cash inflow.

17. Check your product mix

Are some of your products 'sitting around' waiting to be bought?  If so, you might not be offering the right mix of products.  Instead of focusing on the products that create the highest margins, consider concentrating more of your faster-moving lines which don't tie up your cash flow for as long.

18. Get more clients or customers

For two reasons -

Firstly, if you rely too heavily on a small number of main clients, and they pay late (or not at all), then the impact on your cash flow is massive. Solution - you need to get more customers onto your books. It may take time (depending on how you do it), but it is much better than to have a larger client base, even if it is made up of some smaller or infrequent clients or customers, alongside your principal customers.

Secondly, referring to the suggestion above about putting up prices, the same maths can be applied to increasing your customer base - ie an increase in the volume of sales will translate down to increased profits, and ultimately to improved cash flow.  But beware, this is not a strategy to use on its own - failure to implement and adhere strictly to your other cash flow strategies will only result in more cash tied up and exacerbate your cash flow problems further.

19. Clear that excess stock

Many businesses hold too much stock, or, to put it another way, they have too much money tied up in stock.  What might have been 'in fashion' when you stocked up, might now be 'un-wanted' - if so, clear out and sell old or slow moving stock and put the cash generated to better use.

Don't get into purchasing agreements or tantalizing discounts for bulk purchases - never buy more than you need to service current sales activity.

20. VAT cash accounting scheme

If your turnover is less than £1.35 million (a changing threshold), then you can use HMRCs 'cash accounting' scheme whereby you account only for VAT on the physical receipts from your customers and payments made, rather than on the invoices issued which are unpaid at the quarter date. This means that you are not paying VAT on monies you haven't received.

Clearly, if relevant, you should talk this through with your accountant before making any changes.

21. Re-negotiate your suppliers' terms

Continually review your suppliers’ prices to make sure you are getting the best deals – even 1% saved is more money left in the bank and more profit added to your bottom line.  Few businesses do, this but it’s a good way of reducing overheads and freeing up cash.

And while you’re re-negotiating prices, what about extending the credit terms too – how can they refuse a loyal customer like you?  A sound component in your cash flow strategy.  (Again, witness some of the major companies whose strength enables them to now dictate credit terms to their suppliers of 3 months or more - worth millions in cash flow!)

22. If it doesn't save or earn money, ditch it

Examine all your expenses and, quite simply, if it doesn’t earn money or save money, ditch it.  You could be amazed by the variety of expenses, such as ‘membership subscriptions’ that accumulate over time but which are totally unnecessary to the efficient running of the business.

Likewise cut out excessive personal drawings, dividends, etc

23. Rent or hire out or sell surplus capacity

Usually, but not always, cash flow problems are indicative of business contraction – ie lower turnover and activity.  If so, then less capacity is required  - what can you do with the surplus capacity.  Why not rent or hire out equipment, office space, or other resources you don’t currently need.  Even an outright sale of such could be considered if appropriate to your plans.

24. Use alternative financing facilities

Factoring or invoice financing can be a very strong and quick resource.  Depending on the finance provider, you can receive anything between 70% and 90% of the value of your invoices raised within 24 hours of issue.  The factoring partner will then often chase payment of the invoices on due date for you (for a fee of course), and collect and pay the remaining value to you (less the financing fee). 

Factoring is a valuable tool for businesses exploiting opportunities of rapid expansion of turnover, but beware the double edged sword that claws back more cash than you collect when turnover starts falling.

25. Lease instead of buying

Equipment sometimes seems easier to buy than lease, especially if there is some spare cash to hand at the time.  New businesses, with funds injected in, are particularly vulnerable to this. But as businesses grow, working capital and cash can become tight - so think twice before parting with the ’readies’ – they may be critically needed sometime in the future.  Leasing or renting may be the better option.

The school of ‘hard knocks’ will tell you “Never buy what you can lease, never lease what you can rent, never rent which can borrow, and never borrow what you can find in the skip”.

26. Know what's in the pipeline

Know what commitments are coming up, and when - an unplanned invoice at the wrong moment could result in your business going under.  If you don’t have the cash to pay your bills, you cannot survive.  Gone are the days when you could simply ring up the bank for more money tomorrow. 

There is plenty of software available to allow you to plan and control your cash flow on a regular basis.

27. Information is key

You would be shocked at how many business bosses don’t actually know what’s going on in their accounts.  Just as it is important to collect your money inward, so it’s critical that you know where every penny you spend is going to.  Not knowing where your money is being spent is akin to filling in a tub full of water having forgotten to put the plug in.

Having a good accounting and financial reporting system is important, but even more critical is monitoring those numbers regularly if you wish to control your finances properly.

28. Keep on top of your cash flow reporting

Be disciplined – cash flow is the most important element in your business.  You have to take a ‘hands on’ approach to cash, keeping forecasts updated for what money is coming in and what money is going out, and when.  Fail to monitor what is happening, and you may fail to notice approaching danger.




Not recognising or understanding the difference between profit and cash flow is one of the worst mistakes any business can make.  Businesses can be in profit, yet still not have the cash available to settle their immediate liabilities, and the consequences of not settling debts on time can often prove fatal.

Profit is the difference between income and expenditure. Income is calculated at the time the sale is made, rather than when full payment is received. Likewise, expenses are calculated at the time incurred, rather than when you pay the bill.
Cash flow is the difference between inflows (actual incoming cash) and outflows (actual outgoing cash). Income is not counted until payment is received and expenses are not calculated until payment is made. Cash flow will also include infusions of working capital from investors or debt financing, receipts from sales of capital items etc and, on the otherside, any debt repayment, dividends and drawings, investment into equipment, etc.
Cash flow schedules are usually calculated on a monthly basis, since most billing cycles are monthly and most suppliers will typically allow somewhere close to thirty days to pay. However, in a cash-intensive business with a lot of inventory turnover, such as a restaurant or convenience store, it may be necessary to calculate on a more frequent basis - weekly or even daily.


Overtrading - a term used to describes the position where a trading entity is transacting more business than its working capital can normally sustain, thus placing serious strain on cash resources and risking financial collapse or insolvency.

This is a scenario often found in businesses where there is rapid growth - requiring more working capital to fund that growth than is available.  For example, a service business to satisfy increasing demand, taking on an increasing workforce requiring payment weekly, but customers taking months to pay their invoices, requires the time lapse to be funded.


Working capital is essentially 'current assets' minus 'current liabilities'*. Working capital measures how much, in liquid assets, a company has available to conduct and build its business. The number can be positive or negative, depending on how much debt the company is carrying. (Also referred to as 'net current assets' or 'current capital'.)

In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations more freely. Companies with negative working capital rely on external debt (loans etc) to fund that gap and may lack the funds necessary for growth.

*Current Assets - include stock, debtors (money owed by customers), positive bank balances and cash etc.
  Current Liabilities  - include trade creditors (money due to suppliers), amounts owing on taxes and PAYE etc, bank overdrafts and short term loans,etc