13 Cash Flow Management Strategies for Small Businesses

Poor cash flow management is the most common reason small businesses fail, and nearly a quarter of business owners report small business cash flow management and payment collection as one of their top three challenges.

In this post, we’ll share 13 actionable cash flow management strategies for small businesses, including:

  1. Making cash flow analysis part of of your regular routine
  2. Investing in financial management technology
  3. Sending invoices quickly
  4. Managing inventory
  5. Asking for a deposit or milestone payment structure
  6. Offering discounts for early payment
  7. Making it as easy as possible for customers to pay
  8. Asking for longer repayment terms with your vendors
  9. Paying your bills strategically
  10. Factoring unpaid invoices
  11. Selling or leasing unused equipment
  12. Leasing new equipment instead of buying it
  13. Considering a line of credit

But before we dig into these cash flow strategies for small businesses, let’s take a moment to review what “cash flow” means and why it’s so important.

What is “Cash Flow”?

Put simply, the term “cash flow” describes the action of money moving in and out of your business. Managing cash flow for small businesses includes actions like:

  • Minimizing cash on hand
  • Accurately and completely balancing incoming cash with outgoing spend
  • Ensuring any money spent is done so with a focus on a strong return on investment

There are two types of cash flow small business owners must consider:

  1. Positive cash flow means you’re earning more than you’re spending, which means you’ll have cash on hand to cover expenses like payroll, equipment purchases and repairs, loan payments, rent, and other unexpected costs.
  2. Negative cash flow, on the other hand, means you’re spending more than you’re earning. Businesses with negative cash flow may not be able to pay employees or suppliers, cover their rent, or meet their daily operating costs.

Understanding the difference between positive and negative cash flow and implementing cash flow management strategies for your small business are critical to operating and growing a successful business, regardless of what industry you operate in or how many employees you have.

Why Does Cash Flow Matter?

While “managing cash flow” may sound simple, it can actually be very complicated for a small business owner. It can be tempting for business owners to focus on simply generating profits, but it’s important to remember that running a successful business is about more than just revenue.

Focusing exclusively on profits and ignoring cash flow can put your business in a vulnerable position. It’s entirely possible for a profitable business to fail if they have negative cash flow and don’t have working capital available when it’s needed. For example, invoicing a customer may count toward your sales and may be recorded as profit, but until your customer pays, those profits aren’t actually in your pocket. Accrue enough unpaid invoices and you may not have the liquidity you need to cover day-to-day operations, manage unexpected expenses, or grow your business.

13 Cash Flow Strategies for Small Businesses

Cash flow woes are often symptomatic of underlying management issues, but some small businesses are more susceptible to cash flow challenges than others, such as seasonal businesses, new businesses, or businesses that invoice clients rather than taking payment up front.

Implementing cash flow management strategies can help ensure that your small business maintains positive cash flow so that you always have working capital at your disposal, whether you need it to cover an unexpected expense or you’re ready to invest in your business’s growth.

The best cash flow strategies for small businesses depend on what kind of business you operate and how you typically bill your clients. Here are 13 cash flow management strategies for small businesses in any industry to consider:

1. Make cash flow analysis part of of your regular routine

The simplest cash flow strategy for small businesses is to, well, actually make an effort to manage your cash flow. This means regularly reviewing both incoming and outcoming cash to make sure you are meeting your goals and maintaining positive cash flow. Monthly or quarterly reviews are the most common, but you may even want to do it weekly if you are new to the practice, or are a newer business.

Who is this right for?
  • Any business

2. Invest in online accounting software

By streamlining your financial documentation, online accounting software can make managing cash flow for small businesses much simpler. When it’s easier to monitor how much money you have coming in and where it’s going, you can more accurately project future cash flow so you can spend less time worrying and more time actually running your business.

Online accounting software will give you the ability to manage your cash flow by:

  • Capturing, organizing, and analyzing all of your spending. Visibility into spending is a key component of successful small business cash flow management—inaccurately tracking your business’s spending can leave you unexpectedly short of working capital when you need it most.
  • Organizing all of your financial information into one cloud-based system, accessible from any device.
  • Automating financial processes like invoicing, integration with vendors, etc.
  • Integrating other software like inventory management and invoicing.
  • Creating accurate budgets and financial projections.
Who is this right for?
  • Any business

3. Send invoices quickly

If you bill your clients using invoices, you won’t get paid till they receive the invoice—and it may take even longer for them to pay their balance, especially if you have long payment terms. Sending invoices quickly can encourage faster payment and ensure your cash flow stays positive.

If your business uses a monthly invoicing model, consider shifting it to bi-weekly or a milestone-based model to encourage faster payments and keep cash flowing.

Who is this right for?
  • Businesses that invoice clients for payments, rather than selling products and getting paid immediately with cash or credit

4. Manage inventory

If your business moves inventory quickly, such as a restaurant or retail store, keeping a close eye on inventory is key to your small business cash flow management.

To keep cash flowing, be prepared to make difficult decisions about items that aren’t selling well. Instead of typing up cash flow in unsold inventory, consider offering discounts on inventory that isn’t moving so that you can recoup some cash back and free up space for items you know will move quicker.

On the other hand, it also pays to keep your eyes open for opportunities to purchase more inventory for items that do move quickly. Stocking up on these items can boost your cash flow and ensure it stays positive.

Who is this right for?
  • Businesses that move inventory quickly, such as retail stores, cafes, and restaurants

5. Ask for a deposit or milestone payment structure

If your product or service requires a lot of up front work or large expenditures to purchase raw materials, asking for a 50% deposit to get started is an effective way to manage cash flow while you work on the project. Milestone payment structures can also help keep cash flowing as you complete extended or complicated projects.

Who is this right for?
  • Businesses whose product or service requires substantial work or cash up front before delivery, such as graphic designers, manufacturing, or construction

6. Offer discounts for early payment

Offering early payment discounts can encourage clients to pay their invoices faster. A “2/10 Net 30” structure is common, in which clients receive a 2% discount if they pay their invoice within 10 days; otherwise, the full amount is due in 30 days.

On the other hand, don’t be afraid to levy penalties for late payments, especially if a customer is a chronic offender. To reduce the risk of late-paying clients, consider changing your payment terms and requiring payment up front or setting up direct debit for ongoing payments.

Who is this right for?
  • Businesses with long accounts receivable periods, such as construction companies, auto shops, or manufacturers

7. Make it as easy as possible for customers to pay

Making invoices as easy as possible to pay is one of the simplest ways to encourage clients to pay their balance quickly and improve your small business cash flow management.

Some bookkeeping software includes options for single click “pay now” buttons that allow clients to pay directly from their invoice. You may also be able to set up automated payment reminders—some people simply forget to pay, especially if they’re also a small business.

Alternatively, payment plans can make it easier for clients to pay their balance over time because some customers may be more likely to make payments quicker if the payments are smaller and more manageable. If this option is appealing, you may consider charging a small interest fee, and you should be prepared to check their credit rating before you commit to a payment plan.

Who is this right for?
  • Businesses that invoice clients

8. Ask for longer repayment terms with your vendors

More flexibility with your payment terms can make it easier to manage your cash flow without the pressure of short invoice terms that may conflict with your business’s other fixed expenses.

If you have a good relationship with your vendors, you may be able to negotiate new payment terms that will simplify your small business cash flow management. If your current payment terms are 15 days, for example, you could consider asking for 30 days with a discount for paying early.

Who is this right for?
  • Businesses with strong, established relationships with their vendors

9. Pay your bills strategically

If possible, try to schedule your bill payments so that they are not all due at the same time. Start by reviewing your bills and sorting them according to priority, then see if you can stagger your payment dates so that invoices that offer incentives for early payment and your most important bills (like rent and payroll) are covered first. Payments that have more flexibility, such as vendors you have a good relationship with, can be addressed later.

You can also structure your payroll to integrate more seamlessly with your revenue schedule. For example:

  • If you generate daily revenue, like retail or restaurants, weekly payroll might be easier to manage.
  • If you have a slower revenue stream like manufacturers, a biweekly or monthly schedule might be easier to accommodate.
Who is this right for?
  • Any business

10. Factor unpaid invoices

Invoice factoring involves selling your outstanding invoices to a lender, called a “factor”, in exchange for up to 90% of the invoice value up front. The factor will collect payment from the client, and deposit the rest of the outstanding invoice (minus any fees) once payment is received. Leveraging your unpaid invoices in this way can be one of the most effective cash flow management strategies for small businesses that issue large invoices or invoices with long payment terms.

Learn more about invoice factoring for small businesses

Who is this right for?
  • Businesses with long accounts receivable periods or large invoice amounts, such as construction companies, auto shops, manufacturers

11. Sell or lease unused equipment

Selling or leasing unused or underused equipment to other businesses can boost your cash flow, either temporarily or on an ongoing basis. This small business cash flow management tactic is best for long-lived equipment that is easy to move, transport, and install.

Who is this right for?
  • Businesses with long accounts with high-value equipment that can be sold or rented temporarily to other businesses

12. Lease new equipment instead of buying it

Buying new equipment can be very costly in the short-term. Leasing new equipment, on the other hand, can be an effective cash flow management tactic for small business because it offers access to the equipment you need without requiring a major outlay of cash or a commitment to a fixed, long-term payment schedule. It also makes it easier to upgrade to updated equipment down the line if needed, and equipment leases may even qualify for tax credits.

Who is this right for?
  • Businesses with large or expensive equipment needs

13. Consider a line of credit

Business lines of credit offer immediate access to working capital when you need it. If you’re considering a line of credit as a cash flow strategy for your small business, keep in mind that it’s best to apply for and receive a line of credit before you actually need it, especially if your business is in good financial standing. You don’t have to use it, but you can rest easy knowing it’s there if you have an unexpected equipment breakdown or another surprise expense.

Business credit cards are another viable option, but often come with lower limits and higher interest rates than business lines of credit.

Lines of credit are available from traditional lenders like banks, as well as alternative online lenders like Greenbox Capital®. Alternative lenders have more flexible approval requirements than banks, streamlined online applications, and can even make funding available in as little as one business day.

Learn more about alternative business credit

Who is this right for?
  • Any established business

Alternative Funding & Cash Flow Strategies for Small Businesses

Small business cash flow management is one of the biggest challenges faced by business owners in any niche. Adopting techniques that enable faster, easier payments from your customers and clients can ease cash flow woes. Accessing third-party financing can also be a helpful cash flow management strategy for small businesses.

With streamlined online applications, flexible approval requirements, and fast turnaround, alternative funding can help small businesses access the working capital they need to successfully manage their cash flow. Invoice factoring and business lines of credit are two of the most common financing options available to help small businesses maintain positive cash flow, but other alternative financing options like merchant cash advances can also provide working capital when you need it without straining your cash flow.

Learn more about alternative funding
Sources
  1. 10 effective cash flow management strategies for small businesses.” Firm of the Future. October 7, 2014.
  2. 12 Effective Cash Flow Management Strategies for SMEs.” BrooksCity.
  3. Cash Flow Management Strategies and Best Practices.” Lyle Del Vecchio. Planergy.
  4. Eight tips for small business cash flow management.” Wells Fargo.
  5. Struggling for Cash Flow? Strategies for Survival.” Skye Schooley. Business News Daily. Updated June 29, 2022.
Author:
With over 25 years’ experience in financial services, Pamela Kohl has worked closely with banks, alternative finance, and other fintech platforms to develop core banking services, as well as establish new card programs, lending programs, and global payments platforms. She has been nationally recognized for creating innovative solutions, leveraging new markets, and developing winning strategic partnerships. Currently, Pamela serves as Vice President of Marketing at Greenbox Capital. Pamela earned a B.A. from Marshall University, summa cum laude, and M.A. in International Economics from the University of Miami, where she graduated with Distinction.