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You’re not alone if you’ve been stressed about cash flow. In a study from Intuit, “The State of Small Business Cash Flow,” 69% of small business owners reported that it keeps them up at night.
But it doesn’t have to be this way. Big and small changes can help improve business cash flow and help you sleep better.
Key takeaways
- By reducing operating expenses, you don’t need to rely on growth, which can be important when managing cash flow during economic uncertainty.
- Avoid invoice mistakes because it can affect how much you’re paid, when you’re paid, and sometimes, whether you get paid all together.
- By automating cash flow monitoring, you get visibility into your past performance to plan future cash flow.
How to increase your cash flow
Cash flow has two aspects: cash inflow, which is money entering your business, and cash outflow, which is money leaving. Consider both sides to improve cash flow management for your small business. Optimise operational efficiency and reduce unnecessary expenses.
Another key cash flow component is timing. If you can time cash inflows before cash outflows, you create a sustainable cycle of generating the cash you need before it’s needed.
Use a cash flow budget to break down the ins and outs of money in your business and implement a plan. The structure helps you understand what’s necessary to maintain a healthy cash flow.
14 ways to increase cash flow
1. Increase prices
Check the competition’s pricing. Are your prices in the same range? There could be room to strategically raise prices, which is especially common when businesses are dealing with high inflation.
Test your assumptions. Depending on who you sell to and what you sell, you can charge more without losing customers.
2. Minimise accounts payable: Cut unnecessary spending
Critically review your expense history to identify what can be cut down on. Consider these 3 aspects of your spending and how you can optimise them.
Reduce operating expenses
Operating expenses are costs associated with providing goods or services. Examples include labour, materials, and equipment used in manufacturing.
By reducing operating expenses, you don’t need to rely on growth. Look at the direct costs of goods sold or costs of service. Research alternative suppliers or contact your current supplier to see what it takes to reduce unit costs.
Improving efficiency might reduce costs. For example, a new piece of equipment or software might lessen the unit labour costs of production, meaning fewer costs to fulfil a sale.
Lease instead of buy
If you’re in the market for new equipment, technology, or a company vehicle, consider leasing it instead of purchasing it outright. When buying, maintenance costs fall on the owner. A hefty repair bill could unexpectedly disrupt cash flow if something breaks.
If you can find a lease where repairs are the responsibility of the company you’re leasing from, you can rest assured that these unexpected costs won’t affect you. Additionally, by leasing, you may be able to get the most up-to-date versions of something without outlaying a lot of cash upfront. Just be careful to run the numbers and be aware of financing costs.
Reduce inventory
Are you a retailer or wholesaler with extra inventory? Don’t store it or let it take up valuable floor space. Have a clearance sale.
You can donate leftover merchandise to a charity or other nonprofit as a last-ditch effort. You won’t earn money, but check with your accountant to see if you can get a tax write-off.
If you often find yourself with excess inventory, consider smaller orders. This could mean smaller payments, which are easier to plan for and work around.
3. Negotiate better payment terms
As a customer, you have room to negotiate your prices and how they’re being paid. Reach out to your vendors and see if they’re willing to offer:
- Early payment discounts to reduce your overall bill
- Longer payment terms if you send a deposit upon receiving the invoice
- Financing for invoice amounts that spread out payments
- Switching to an annual contract or a monthly “subscription” pricing
Each option gives you control over how much you’re paying and when it’s being paid.
4. Invoice accurately
Invoice mistakes affect how much you’re paid, when you’re paid, and sometimes, whether you get paid altogether.
If your customers receive an incorrect invoice, they might only notice when it’s time to pay. At this point, they’ll dispute the invoice, which would need to be redone, submitted, and restarted.
If you were depending on that invoice payment to cover an upcoming bill, you’d be on the hook for something you don’t have the money for, and you might incur late payment penalties or turn to financing to cover the expense.
To avoid these mistakes, set up an invoicing solution that uses matching to verify amounts by matching invoices to purchase orders.
5. Collect receivables
The goal with invoicing should be to make the billing and collection process as quick and smooth as possible.
The first thing you should look at is how you’re invoicing clients. Are you still delivering physical invoices rather than electronic ones? Are you manually drafting invoices? Get critical about your processes and where you can improve them.
Billing the customer efficiently
Electronic invoicing platforms improve the process of completing and delivering in just a few clicks. Use purchase orders to draft the details, which can be automatically imported into an invoice as soon as approved.
Send invoices electronically when possible. Physical invoices sent by mail take time to reach your customer. If there’s a mistake, that lengthy process gets reset when you send an adjusted invoice.
6. Send invoice reminders
Late payments can happen for innocent reasons. Sometimes all it takes to get a payment is a light reminder.
Sending an invoice reminder can be automated. Accounts receivable software often offers automated payment reminders, so any follow-up once an invoice is sent is automatic.
This simple change will help you get paid faster and boost your cash flow with minimal work.
7. Offer early payment discounts
Early payment discounts are a common tactic businesses use to get paid faster. The discount doesn’t need to be massive to spur action. Best practices to keep in mind:
- Start small. Start with something like 2% if paid within 10 days, and monitor results before increasing it.
- Use a tiered system. Have different discounts for payments on different timelines.
- Measure results. Track your accounts receivables turnaround times and how much discounts cost you.
8. Penalise late payments
Just as you use financial incentives to make payments come through faster, you can use financial incentives to dissuade late payments.
The late payment fee could be a flat amount or based on a percentage. Flat amounts put a greater sense of urgency on invoices with low quantities. Percentage-based penalties mean the more an invoice is worth, the greater the penalty.
Remember to include these penalties in your terms of engagement and notify existing customers about the change.
9. Offer electronic payment options
Electronic payments are convenient and often require less work to process, which makes it easier for finance teams to make a payment. The easier it is to make a payment, the more likely it is to be done quickly.
On your side, electronic payments can be deposited into your account as quickly as the same day. ACH payments offer same-day options; otherwise, they take 1 to 3 business days to clear.
10. Secure loans
When cash flow feels particularly tight, a business loan can act as a bridge to help you through.
Finding and applying for a loan can be a lengthy process. It’s not a great option for short-term needs, but the injection of capital creates a buffer that makes any ebbs and flows in cash flow more manageable.
11. Apply for a line of credit
Business lines of credit are great to fall back on if you encounter a cash flow crunch. A line of credit lets you take what you need when needed — you only pay for the amount you use.
The downside is that lines of credit typically have higher interest rates. The best time to apply for a line of credit is before you need working capital.
12. Factoring or invoice financing
If you need a quick, short-term cash infusion, consider factoring or invoice financing.
Factoring involves selling outstanding accounts receivables to a collections agency. Factoring costs are high, especially if you are being paid upfront. Check with your accountant to make sure it makes sense for your business.
13. Use cash flow forecasting
The best way to avoid a cash flow shortage is to know when it’s coming. Cash flow forecasting shows how things are trending, so you get a warning before a disruption.
By identifying potential shortages before they happen, you can start developing a plan for handling them.
14. Automate cash flow monitoring
Generating cash flow statements and forecasting cash flow manually takes time. You’ll likely set up a weekly or monthly cadence for doing it.
By automating cash flow monitoring, you get perfect visibility into your past to measure and understand performance while getting a preview of the future you can plan around. This makes identifying high-risk situations happen quicker, giving you the longest runway to prepare.
Most of these strategies share one thread: stop leaving money on the table. At Mighty, we tackle one of the biggest drains on cash flow, the cost of everyday business expenses. Because members buy collectively, they access pricing most independent businesses can’t negotiate on their own.
Find out what Mighty members are saving →
FAQ
What is cash flow and why does it matter for small businesses?
Cash flow is the movement of money in and out of your business. Positive cash flow means more is coming in than going out, which keeps the lights on, covers payroll, and gives you room to grow. Negative cash flow — even temporarily — can put a business in serious trouble, regardless of how profitable it looks on paper.
What are the fastest ways to improve cash flow for a small business?
The quickest wins usually come from the receivables side: send invoices faster, follow up on late payments, and offer electronic payment options to reduce delays. On the cost side, reviewing subscriptions, renegotiating supplier terms, and reducing unnecessary inventory can all improve your position quickly without requiring new revenue.
How can small businesses reduce costs without cutting quality?
Start by auditing what you’re paying for recurring services and supplies. Many businesses overpay simply because they’re buying individually rather than in bulk, or haven’t reviewed their vendor contracts recently. Joining a group purchasing organisation can give small businesses access to pre-negotiated rates on everything from office supplies to insurance — without any extra admin.
What’s the difference between a business loan and a line of credit for cash flow?
A business loan gives you a lump sum upfront, which you repay over time — useful for a specific investment or covering a known gap. A line of credit is more flexible: you draw what you need, when you need it, and only pay interest on what you use. For managing unpredictable cash flow dips, a line of credit is often the more practical option — and it’s best applied for before you actually need it.
How does invoice timing affect cash flow?
Timing is everything. If your expenses are due before your invoices are paid, you’re constantly playing catch-up. Sending invoices immediately after work is completed, shortening your payment terms, and using automated reminders can close that gap significantly. Even moving from 30-day to 14-day payment terms can make a meaningful difference to your monthly position.
Can buying collectively really improve cash flow?
Yes, and it’s one of the more underused strategies. When small businesses pool their purchasing power through a group buying organisation like Mighty, they access the same kind of supplier pricing that large corporations negotiate — without needing the volume. That means lower costs on things you’re already buying, which directly improves your cash position every month.