How to Improve Your Business Cashflow

Struggling with cash flow forecasting? You're not alone. Many companies face challenges in consolidating data from various sources to create accurate forecasts. According to a survey, less than 25% of organizations rate their cash forecasting maturity as above average.

Additionally, 22% of treasurers acknowledge their cash positioning capabilities need development. These issues can lead to inefficient capital allocation and increased financial risk. Improve your business cashflow, forecasting and positioning is essential for financial resilience as economic uncertainties persist.​

What is Cash Flow?

Cash flow refers to the movement of money into and out of a business. It represents the net balance between incoming funds, such as revenue from product or service sales and returns on investments, and outgoing payments, including operational expenses and debt obligations. A company’s financial health often depends on its ability to consistently generate positive cash flow through its day-to-day activities.

Cash flow is the lifeblood of any business. Without sufficient liquidity, even the most promising companies can struggle to meet obligations, invest in growth, or weather financial disruptions. Whether you’re a startup trying to stay lean or a growing enterprise managing seasonal revenue fluctuations, improving your cash flow can mean the difference between thriving and merely surviving.

Below are practical ways to improve your business cash flow, based on time-tested strategies.

Improve Your Business Cashflow

1. Build Stronger Cash Reserves

Building robust cash reserves is essential for business stability. A healthy reserve acts as a financial buffer, enabling companies to navigate unexpected expenses, and revenue fluctuations, and invest in future growth opportunities.​

However, achieving and maintaining substantial cash reserves can be challenging. The experience of electric vehicle startup Fisker serves as a cautionary tale. In 2024, Fisker filed for Chapter 11 bankruptcy after a rapid cash burn during the production and delivery of its Ocean SUVs in the U.S. and Europe. The company struggled to secure additional funding and faced production challenges, leading to its financial downfall.

Strategies to Build and Maintain Cash Reserves

To avoid similar pitfalls, consider the following strategies:

• Calculate Your Burn Rate – Determine your monthly expenses and set a target to maintain reserves covering 3–6 months of operating costs.​

• Separate Accounts – Maintain distinct accounts for operations, taxes, growth initiatives, and emergency funds to ensure clarity and discipline in financial management.​

• Implement a Savings Plan – Allocate a fixed percentage of your revenue to your reserve fund consistently.​

• Use Rolling Cash Flow Forecasts – Employ 13-week rolling forecasts to anticipate cash shortages and make informed financial decisions.​

• Automate Transfers – Set up automatic transfers to your reserve account upon receiving revenue to ensure consistent savings.​

• Regularly Review Reserve Targets – Assess and adjust your reserve goals quarterly to account for seasonal variations and business changes.​

• Establish Clear Policies – Define guidelines for when to utilize reserve funds and strategies for replenishing them.​

• Leverage Financial Products – Consider using high-interest savings accounts or credit cards with cashback rewards to enhance your reserves.

By implementing these practices, businesses can build a financial cushion that not only safeguards against unforeseen challenges but also positions them for sustainable growth.

2. Optimize Inventory

Inventory can be a double-edged sword—too much of it ties up cash in unsold products, while too little can lead to missed sales and dissatisfied customers. Overinvesting in inventory becomes especially risky when sales fall short of expectations, leaving businesses strapped for working capital.

Compounding the challenge, many companies face seasonal fluctuations in demand, which can make inventory planning even more complex. Without accurate forecasting and proactive management, these swings can disrupt cash flow and strain resources during slow periods.

To mitigate these risks, business owners should use an inventory management system that helps track stock levels, automate reordering, and identify purchasing patterns. Incorporating demand forecasting tools and historical sales data allows you to strike the right balance, ensuring key products are in stock without overstocking.

Adopting a just-in-time (JIT) approach can also help. By keeping inventory on hand for the shortest time possible, you reduce holding costs and preserve liquidity. Combined with regular cash flow projections, this strategy helps you stay ahead of seasonal demand changes and maintain healthier financial stability year-round.

3. Streamline Invoices and Payments

Efficient billing and payment processes are indispensable for maintaining healthy cash flow. Delays in invoicing or relying on outdated payment methods can slow down your cash inflows and increase financial risk.

Start by sending invoices immediately after a product is delivered or a service is completed. The sooner you invoice, the sooner you can expect to be paid. Implementing a streamlined and possibly automated invoicing system ensures that bills go out promptly, with clear payment terms and due dates that eliminate confusion and encourage timely payments. 

Next, move away from manual check payments and adopt electronic payment methods such as ACH transfers, wire payments, or business credit cards. Electronic payments reduce processing time, enhance transaction security, and allow for easier tracking and reconciliation. They also benefit both you and your vendors, promoting smoother relationships and more predictable cash flow.

Together, faster invoicing and digital payment systems can significantly shorten your cash conversion cycle, helping you keep operations running smoothly and strengthening your financial foundation.

How to Get Paid Faster

Before diving into complex payment systems, start with simple, effective methods that deliver quick wins. Focus on approaches that not only improve your cash flow but also provide value to your customers, creating a mutually beneficial dynamic.

The key is to maintain professionalism while making the payment process as smooth and convenient as possible for your clients.

Not sure how to begin? Start with these practical tips:

• Set Clear Expectations Early – Communicate your payment terms clearly and upfront—ideally at the start of the customer relationship.

• Offer Multiple Payment Methods – Make it easy for clients to pay by accepting credit cards, ACH transfers, mobile wallets, and other digital options.

• Automate Payment Reminders – Send timely reminders, such as 15, 7, or 3 days before the due date, to keep invoices top of mind.

• Simplify the Payment Process – Create a self-service portal where customers can view invoices, manage payments, and update billing information at their convenience.

• Optimize Internal Finance Workflows – Streamline your back-office processes to improve efficiency and strengthen relationships with suppliers and customers.

• Regularly Review Payment Terms – Use historical payment data to assess and adjust your terms quarterly to align with evolving business needs and customer behaviors.

4. Offer Discounts for Early Payment

Encouraging your customers to pay early can accelerate incoming cash and improve your working capital. Offering a small discount—say 2% if paid within 10 days—can motivate customers to pay invoices ahead of schedule instead of the typical 30- or 60-day terms.

This approach may slightly reduce your revenue per invoice, but the trade-off is improved cash flow consistency and less reliance on credit or short-term financing.

5. Pay Suppliers Less

This doesn't mean underpaying or shortchanging your suppliers. Instead, look for opportunities to negotiate better terms. Even small reductions in monthly expenditures can add up, giving you more breathing room in your cash flow and improving your bottom line.

Negotiating better terms with suppliers can significantly enhance your business's cash flow without compromising supplier relationships. Here are some strategies to consider:

Negotiate Volume Discounts

When purchasing in bulk, discuss the possibility of volume-based discounts with your suppliers. Committing to larger orders over time can often lead to reduced unit prices or percentage-based discounts, resulting in substantial cost savings.

Extend Payment Terms

Requesting longer payment terms, such as net 60 or net 90 days, can provide more time to generate revenue before payments are due, thereby improving cash flow. Suppliers may be amenable to this, especially if you have a strong credit history or a longstanding relationship.

Explore Alternative Vendors

Regularly assess the market for suppliers offering more competitive pricing or better terms. This doesn't mean ending current relationships, but ensuring you're getting the best value for your expenditures.​

Why Is Improving Your Cash Flow Important?

Strong cash flow management does more than just help you pay bills on time. It’s critical for:

• Meeting short-term obligations like payroll, rent, and utilities.

• Funding growth initiatives such as product development, marketing, or expansion.

• Reducing dependency on loans or credit lines.

• Weathering economic uncertainty, market fluctuations, or seasonal sales dips.

• Improving investor and lender confidence can lead to better financing options.

Without positive cash flow, your business may become over-leveraged, miss out on opportunities, or, worse, risk insolvency.

Smarter Cash Flow, Stronger Business

Improving your business cash flow isn’t about cutting corners but working smarter. Every step you take toward better cash flow management helps stabilize your business and fuel long-term growth.

As markets become more competitive and economic headwinds persist, cash flow mastery will set successful businesses apart. Start by evaluating your current inflows and outflows, implement the tips above, and revisit your cash management strategy regularly. The result? Greater financial clarity, confidence, and control.