Cash flow is perhaps the most vital aspect of a business overall health, and yet it is also the most frequently misunderstood one. 

Many companies seem to be making good money on paper, but at the same time, they could be struggling with day-to-day payments. This is because money is not moving in and out at the right time. In other words, a poorly managed cash flow could be the issue. 

In fact, when late payments meet high expenses, it’s tough for businesses to maintain their cash flow in the green. What can you do to take control of your cash flow, instead of letting it control you, as a small business? 

Make Sure To Get Paid on Time

The fastest way to improve cash flow is to improve how and when you get paid. Ultimately, delaying when you send out invoices or providing unclear payment details can slow down payments. 

Companies that get their invoices out the door straight after delivering the goods or services tend to get paid on time far more often than not.

Naturally, accuracy is just as important as speed. Getting the figures wrong or missing something on an invoice can trigger a dispute that delays payment for weeks. That’s why using tools like automated invoicing software can reduce issues. It can also keep track of when payments are due and flag up any late payments early on. 

Avoid Surprise Expenses

What are unplanned expenses? They refer to items that have not been budgeted and that can affect your cash flow. This may be more common for businesses working with teams of contractors, as you can face additional costs for subscriptions, tools, and other equipment that may be relevant to the work. 

The best way is to budget for the unexpected. It may sound silly, but more and more businesses are using virtual pre-paid cards to keep tabs on work-related expenses of their teams. Essentially, they load up a card for things like software or cloud tools, which means they already know exactly how much they can afford to spend on these items. 

Negotiate Payment Terms with Suppliers

Managing your cash flow is all about the flow: in, out, and how it all adds up. 

One area where many small businesses struggle is with balancing the payment terms they sign with their suppliers vs. the ones they have with their customers. 

Paying suppliers faster than you receive payment yourself can lead to fluctuating cash flow. But on the flip side, when businesses are not paying quickly enough, it can put a real strain on the relationship with suppliers.

That’s why small businesses try to negotiate payment terms that make sense to their budget, like net-30 or net-45 with their suppliers. Rather than having to pay up as soon as a bill arrives, the right payment terms can provide the flexibility tomake better use of cash flow. 

Ideally, businesses need to discuss payment terms with their suppliers that are longer than the payment terms they have with their own customers, as this would avoid any cash flow gap.

In conclusion, a strong cash flow is the result of strategic choices and decisions. It’s also important for new businesses to understand that fluctuations can still happen. Sometimes, it’s not about strict day-to-day management, but trend focus instead, allowing cash flow to dip in the red if needs be before recovering.