6 tips to combat small business cash flow challenges

  • Sue Duckett

    Sue Duckett

Posted12/12/2019 1:00 AM

Cash flow can be an ongoing battle for many small businesses. 29% of startups fail because of a lack of cash flow, according to a report from CB Insights, and the approaching holiday season can make it even more of a challenge for many.

For those unfamiliar with the term, the Oxford Dictionary defines cash flow as "The total amount of money being transferred into and out of a business." To help combat cash flow challenges that many face here are six tips to help small businesses with cash flow struggles during the holiday season and 365 days a year. 


Make it easy for your customers to pay

The easier it is for your customers to pay you, the more likely they are to do it. Increasing your payment options beyond just standard checks is easy with various credit card payment options as well as services such as PayPal, Venmo, and others.

Find balance between when customers pay and when your bills are due

By taking a look at the terms your creditors are offering you and the terms you are offering your customers, you could find the right balance for your business. For example, if your creditors give you 45 days to pay, you could give your customers 30 days to pay to help ensure you have the funds when you need them. You could also consider asking for deposits or prepayment from some customers.

Use a cash flow system

The first thing you need to do to ensure you are preventing possible cash flow challenges is to have a way to accurately know the current and future status of your finances. The right cash flow management system can help you track what cash you have on hand, what is coming in, and what is going out. There are many online services available such as Pulse, Wave, CashFlowTool, QuickBooks, and many others. A quick online search will help you find the one that is right for your business.

Factor your unpaid invoices 

Factoring your unpaid invoices is a quick and easy way to improve your cash flow. With this financing option, you complete a fairly quick application process then the factoring company will advance your funds usually within hours of submitting your invoice to your customer. It is crucial to find a factoring company with terms that work best for your company because terms can vary greatly.

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Look for ways to save

The two best ways to improve your cash flow are to increase the money coming in and limiting the money going out. We will leave it up to you to increase the money coming in and focus on tips for ways to limit the money going out. It could be best to start by looking at where you are spending money to find any easy ways to save. Other things to consider are -- do any of your vendors offer discounts, such as early payment discounts that you might be able to take advantage of if you ask for deposits or prepayment from your customers? Can you make repairs to any of your equipment instead of replacing it? Can you purchase used equipment instead of new equipment?

Finance your assets correctly

While it may seem easier to pay for large purchases, such as equipment, upfront in one lump sum, this could hurt your cash flow and even cost you more money. To improve your cash flow, find out if there are ways you can spread out payments over a period of time instead. This can sometimes be done at no additional charge to you, and even if interest is applied, it might be lower than the interest you could be charged to borrow the same amount or less than other fees you will incur by not having the available cash flow. 

There is no one size fits all for combating small business cash flow challenges since every business is unique. Hopefully, these tips can help you work out a plan to best fit your businesses cash flow challenges at the holidays and 365 days a year.

• Sue Duckett is executive vice president of Franklin Capital Network in Highland Park

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