Maintaining a healthy cash flow in an unpredictable economic climate is crucial for business resilience. Doing so ensures your business can meet its financial obligations and seize growth opportunities, but improving cash flow in business can be a challenge in many industries.
In this article, we provide practical information on business finance to improve your cash flow, helping your company not only survive but thrive in these more difficult economic conditions.
How to control cash flow in business
Cash flow is the lifeblood of any business, representing the movement of money in and out of the company.
Sam Ralton, Octet’s Director of Working Capital Solutions, VIC, TAS, SA, explains, “The importance of cash flow is the ability to pay for goods and services when they fall due. Profit is a snapshot of how much money the company’s earned after expenses, but that doesn’t mean that the cash flow is in a healthy position.”
In fact, many companies confuse high profit with good cash flow. While the two are somewhat intertwined, improving cash flow in business is much more about forward thinking, planning and strategy.
“In a growing business, cash flow management gets increasingly harder because although you may have good margins and you’re making a profit, there’s a lag in time before that money is available to you, and therefore the cash flow runway is restricted,” Sam explains.
Cash flow runways and forecasts
A cash flow runway is the period a business can operate before it runs out of money. Having a clear understanding of your cash flow runway helps you plan and ensures the business can cover its expenses for a set period.
Cash flow forecasts are equally important as they predict future cash inflows and outflows, allowing businesses to prepare for potential shortfalls. “Cash flow forecasts are a good tool and indicator of when your business can pull certain growth levers or, conversely, restrict unnecessary spend,” says Sam. “They’re essential to ensure you don’t spend money today that you may need in the near future.”
So, what are some practical strategies for managing your business cash flow opportunities and issues?
6 simple strategies for improving cash flow in business
- Review pricing structures: Ensure pricing covers your costs and desired profit margins. Regularly review and adjust prices to reflect market conditions.
- Increase sales: Implement more layered brand marketing strategies and explore new markets and product verticals to boost revenue.
- Control expenses: Regularly review expenses to identify and cut unnecessary costs.
- Faster payment collection: Implement stricter payment terms and follow up on overdue invoices promptly using appropriate accounting software.
- Inventory management: Utilise technology to maintain optimal inventory levels, reduce any holding costs and free up cash.
- Supply chain management: Negotiate better terms with suppliers to improve cash flow timings. Where it makes sense for your business model, early payments can sometimes create opportunities to discuss discounts with appropriate suppliers.
Explore our recent article on managing cash flow strategies to find out more.
Business cash flow solutions for working capital finance
Working capital finance products like debtor finance (also known as invoice finance) and trade finance can significantly improve cash flow.
Debtor Finance cash flow benefits
Debtor finance provides an instant cash injection by unlocking funds tied up in unpaid invoices. This liquidity helps cover operational expenses, supplier payments and even fund growth opportunities.
Sam advises, “Debtor finance can give you the cash flow required upfront. So if you need funds earlier, you’ve got the certainty of borrowing against your invoices rather than waiting for those payments to arrive under the original terms.”
Businesses that access debtor finance can execute more effective financial plans by better managing cash flow fluctuations and the uncertainty associated with extended payment terms or delayed payments.
Unlike traditional loans, debtor finance requires no personal assets as security. This flexibility allows you to access funds when you need them, without risking valuable assets.
Trade Finance cash flow benefits
Trade finance offers substantial cash flow benefits by providing a tailored line of credit that bridges the gap between purchasing and selling goods. This funding solution ensures that businesses do not have to tie up their cash flow in inventory that takes weeks to arrive, process and sell.
By introducing a financial partner, such as Octet, into the supply chain, businesses can access funds to pay suppliers immediately, whether they are local or overseas. This enables the business to maintain healthy cash flow, as they can repay the credit facility over time rather than having their working capital tied up in these often lengthy transactions.
Because you can set a competitive exchange rate for the transaction upfront, trade finance can also safeguard against currency fluctuations. This supports smoother and more predictable financial management and helps increase your business’ purchasing power.
Where to go for business cash flow solutions
Implementing effective cash flow management strategies and leveraging working capital finance products can help you confidently navigate economic uncertainties. But staying on top of business cash flow and utilising these strategies and products can be a complex exercise, even for the most experienced of operators.
That’s why seeking professional advice is often a good idea. Financial planners, accountants, commercial finance brokers and business finance experts can all provide valuable insights and tailored solutions. For earlier growth stage businesses, it’s really important to consult widely in order to find the most suitable cash flow advice for your unique business circumstances.
Keep your cash flowing
Improving cash flow is essential for business stability and growth. At Octet, we’re here to support your business at every stage, offering expertise and financial solutions tailored to your needs. Our working capital products are designed to help businesses in all industries manage cash flow effectively.
Our team can provide guidance on leveraging innovative supply chain finance solutions and tools to maintain consistent cash flow, crucial for sustaining and growing your business in these challenging conditions.
Contact us today for more information on how Octet can help your business thrive.
Disclaimer: These comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
