Cash Flow Management – Keeping the Money in Your Hands

Cash flow is crucial for any business, yet it’s often misunderstood. Here are some straightforward tips to help you manage it better and keep more money in your hands: 

• Invoice sooner: Consider pre-payment options. 

• Collect sooner: Implement reminders and follow-ups. 

• Increase prices: Where feasible, adjust your pricing. 

• Reduce costs: Identify areas to cut expenses.
  

You can get an idea of the impact of each by doing some quick calculations. 

How Invoicing Sooner Improves Cash Flow

While every business is a bit different, let’s show what would happen if you invoiced one week sooner and assume you’ll get paid a week sooner.   

To estimate the impact, try this simple exercise.  Divide your total revenue by 52 weeks.  For instance, $260,000 / 52 = $5000/week.  That is your average weekly revenue. If you invoice your clients one week earlier, conceivably you’d have $5000 in your hands instead of theirs every week or $20,000/month.  What could you do with that extra “cash flow”. Maybe eliminate your line of credit. 

Boosting Cash Flow Through Client Pre-Payments

Imagine if you asked for a 50% pre-payment on all your work, that would total $2500 per week ahead of the invoice date… and, if typically there are 4 weeks from order to invoice date that could be $10,000 more in your hands instead of theirs each week. 

How Faster Payment Collection Improves Your Cash Flow

Similarly, collecting a week sooner would also result in $5000/week additional money in your bank.  Can you have staff call to collect and reduce your payment average from 45 days to 38 days?  Do you have automated email or SMS messages to remind your clients that invoices are due, if so, use them.  You can also offer discounts for early or pre-payment.  A 2% discount for pre-payment under 30 days can have a better financial outcome than borrowing on your credit card, if that is part of your cash flow strategy, especially if your clients pay in 60-90 days. 

Increasing Profit Through Pricing and Cost Adjustments

We won’t go into the details of increasing your prices or reducing your costs here but using the example above, you can see how much this might improve cash in your hand.  A 5% increase in your prices on $260,000 in revenue would result in $13,000 annually or $1083 per month cash in-hand.  Similar math used on your “costs” can illustrate the effect that reducing them could have. 

Putting More Cash in Your Hands

Cash in your hand instead of the hand of your suppliers or clients might be the obvious goal of a business, but how to get more of it moving in the right direction, sooner, takes a bit of planning and action.  Your bank account will thank you for having your hands on these important levers to successful business. 

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About The Author

Steve Falk

Former Small Business Owner & Marketing Expert at Yellow Pages

Steve recently joined Yellow Pages after many years running his own businesses. As an entrepreneur, he grew several companies from just a few people to strong, successful teams. His focus was always on sales and marketing—because that’s what helped his clients grow too. Steve’s businesses offered marketing services to help other companies and charities reach more people and make a bigger impact. Now at Yellow Pages, he brings that same experience and energy to helping Canadian businesses grow.