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7 cash flow recovery strategies for your small business

When running a business of any size, some things are just givens: You’re going to have no time to chillax in front of the TV, employees will get sick right when you need them the most, and you’re going to need to make sure you have enough cash to operate. 

Cash flow woes, on the other hand, don’t have to be givens. Let’s take a look at some of the reasons your business might have cash flow issues, and some strategies to solve them sooner rather than later. 

What’s cash flow and why it’s important 

Cash flow is the flow of cash coming in and out of your business at a given time. When more cash is coming in than going out, that means your cash flow is positive or healthy. In this case, you have enough money to pay vendors, suppliers, payroll, and other expenses. Healthy cash flow also gives you the ability to invest in your business and its growth. 

On the other hand, having negative cash flow makes it harder to forecast expenses or prepare for slow months. 82% of shuttered small businesses actually cite cash flow issues as the reason for their failure. 

Why do you have negative cash flow? 

Before you decide how you deal with cash flow issues, it’s important to investigate and understand why you are having these issues to begin with. 

Below, we’ll outline some of the most common causes of cash flow issues right now.

Inflation

When inflation is high, as we’ve seen in the U.S. in the last few months, businesses with existing loans suddenly find themselves making larger installments. Higher interest rates lead to higher loan payments, which means businesses may have predicted a certain cash flow, but are dealing with less free cash on hand.

Supply chain issues

Covid-related shutdowns, lack of working hands, and other factors over the past three years, created material shortages and price increases across all industries. The rising price of goods means less cash on hand and it’s thus harder to forecast cash flow. 

Growing labor expenses

Most, if not all industries are currently facing staff shortages. This issue started with the pandemic but has worsened over time. Because of this country-wide challenge, businesses sometimes can’t meet the demand to deliver products and services to their customers, which can hurt revenue. Meeting these demands by hiring temporary staff or investing in upskilling existing employees comes at a cost that affects cash flow further.

Messy bookkeeping

Keeping the books in order is important to make sure your business is on track with its finances. Being able to forecast cash flow will help you adjust your needs in time and avoid being surprised by low earnings and unpredictable expenses. 

Inventory Management Issues

It may sound counterintuitive, but having too much stock can be a problem. The bigger your stock, the less available cash you have. 

Plus, if you forget to count a part of your stock, you end up with money issues without even knowing it. Not only will you not be able to sell it until you find it, but this forgotten stock will continue to burden your cash flow until you do.

Cash flow recovery strategies you can try

Now that you understand why your business is facing cash flow issues, there are ways to recover. Let’s deep dive into them. 

#1 Negotiate your accounts payable

Accounts payable, or AP, is all the money that your business owes or needs to pay for goods and services. That includes all your business expenses such as rent, utilities, supplies, and service providers. 

A financially healthy business should always have enough money to pay all the bills. But, if you are short on cash, you can definitely negotiate better payment terms with your vendors. Create a payment schedule that helps you hold onto cash longer. 

#2 Use online AP tools 

Using a digital payment tool can benefit your cash flow in many ways. First, it can help reduce accounting errors that may result in double payments or wrong cash flow forecasting. 

In addition, many vendors are working with paper checks. But digital bill pay solutions like Melio allow you to pay by credit card, even if your vendors don’t accept them. By paying your business bills with a credit card, you can defer payments to the next billing cycle. That way, you can buy the inventory you need now, while only paying when your balance is due and you have enough cash to do so.  

#3 Revisit outstanding invoices

Outstanding invoices are any invoices sent to customers that haven’t been paid yet. Regularly review your accounts receivable (AR) and if there are invoices to be collected, consider incentivizing your customers to pay them earlier. Sometimes, invoices haven’t been paid because your clients just forgot. Use this opportunity to send out reminders. 

#4 Sell equipment you don’t need 

Sustainability is the word on everyone’s lips and negative cash flow is a wonderful opportunity to turn this into practice. We’re sure there are a lot of things that aren’t in use in your office or store. Desks, chairs, computers: Anything you don’t need, can be sold to earn some extra cash. 

#5 Be aware of federal programs

When your business is facing cash issues, the first thing that comes to mind is a loan. Before you take that route, make sure you consult an accountant or a financial expert. Either way, be sure to check what federal grant or loan programs are applicable to you. The Small Business Administration is usually a good source of information.

#6 Run a promotion

This may sound like a strategy that goes against common sense but hear us out. Promotions are a great way to increase sales and attract new customers. By creating a promotion and advertising it—online, through word of mouth, or, if you have a brick-and-mortar, using decor—you can actually create more revenue. 

#7 Ask an accountant 

Managing your finances isn’t easy. It’s that part of owning a business you might feel like you haven’t signed up for. That’s why financial experts are out there. Even if you don’t have an accountant, it’s always recommended to consult one when your business is facing financial challenges.

Hold on to cash longer

No matter how you got here, there are several ways for you to manage cash flow issues. Once you determine the reasons your business is facing those issues, you can start planning immediate steps and long-term solutions. Even if your financials are stable, taking care of your accounts payable by digitizing them and negotiating your payment terms is always a good idea. 

Start by signing up to Melio today, to securely process all your business payments online.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.

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