Cash flow and your business: 4 tips to help improve your cycle

Whether it’s dealing with unexpected expenses, seasonal fluctuations or late payments from clients, cash flow management can be one of the most stressful parts of running a business.

Maintaining a healthy cash flow is one of the key hallmarks of any successful business. While this can sometimes be a challenge, the good news is that there are a few strategies you can implement to improve cash flow and help your business stay in the black.

1. Understand your cash flow cycle

It might sound complicated, but a cash flow cycle simply refers to the timing of your cash inflows and outflows. Stay on top of it and you’ll always be able to see whether your business has enough cash on hand to cover operating costs.

There are useful online tools like business.gov.au’s cash flow canvas, where you can map out your cash flow cycle and spot any potential gaps. It’ll help you make smarter decisions around when to make purchases or delay expenses, as well as how to plan for your business’s future financial needs.

Taking advantage of a business card’s features, such as extended payment periods to pay for purchases, can also help with cash flow days.

2. Adjust your pricing strategy

Making sure your prices reflect the value of your products or services can play a big part in your business’s financial health.

The problem is that many small businesses are hesitant to raise prices or aren’t sure how to do it properly. Look at the ACCC’s advice on how businesses can set prices fairly while factoring in costs and profit margins.

The ‘banana example’ is a great case study, where retailers adjusted the price of bananas based on market conditions in the wake of North Queensland’s Cyclone Yasi, circa 2011.

In the economic climate we’re in today, businesses are being hit with higher costs that can eat into margins. If you need to raise prices because of expensive coffee beans or harder-to-get building materials, make sure to explain to customers why you’re making the change and how it will enable you to continue bringing quality to the table.

Use all of the market information available to you, including what your competitors are selling their comparable products/services for, and you’ll be able to place yourself in a fair – but hopefully still profitable – position for better sales.

3. Look into flexible payment options

Another way to manage cash flow is to take advantage of unsecured lines of credit and features offered by business credit cards.

As financial tools, they can give you the flexibility you need to cover operating costs, pay for large orders or even seize growth opportunities without the immediate need to dip into your cash reserves.

“American Express Business Charge Cards, for example, come with what’s called a flexible payment option¹,” says Kiely Potter, Vice President Commercial Account Development & Client Onboarding Australia & New Zealand at American Express. “This feature lets card members pay off their balance – up to a limit – over time.

“It’s like an instant line of credit, without any additional paperwork or applications as it’s already built into the charge card. This flexibility is perfect for managing day-to-day operating expenses.”

Unsecured lines of credit can be a valuable resource for businesses that don’t want to put up personal or business assets as collateral. They can give you quick access to funding for a range of business needs, from buying new inventory to taking care of payroll during the slower months.

4. Stay on top of customer payments

Making sure your customers are paying you on time can be crucial to healthy cash flow. Easier said than done, though.

Late payments can make it difficult to cover your operating expenses, but there are things you can do to encourage more timely payments from your clients.

“It’s important to agree on fast payment terms with your clients, which could involve requiring a portion of the payment as a deposit upfront,” says Potter.

“Another way of encouraging clients to pay on time is offering incentives like early payment discounts or, alternatively, charging interest for late payments.”

Setting clear payment terms and offering incentives for early payments can be extremely effective. While it might seem awkward at first, these strategies can minimise late payments and keep your cash flow steady.

Always remember that improving cash flow is essential for not just the survival of your small business, but its growth as well.

Find out more

Learn more about how American Express Business Cards can help your business grow, offering many benefits including premium tools, cash flow solutions and membership rewards. Compare cards here to see what’s right for your business.

This article is brought to you by Business Builders in partnership with American Express.

Feature image: AdobeStock 

This article is not intended as financial advice and all information has been prepared without taking into account your objectives, financial situation or needs. You should review the product information to decide if any product is suitable for you.

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1 Flexible Payment Option: With Flexible Payment Option, you will be charged interest if you do not pay your Closing Balance in full by the due date each month. Please refer to your monthly statements for the current interest rate and PDS for number of interest free days. For full Terms and Conditions please click here: https://www.americanexpress.com/content/dam/amex/au/staticassets/small-business/pdf/services/card-terms-and-conditions/American_Express_Business_Charge_Card_Agreement_FPO.pdf