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6 Ways to Manage Cash Flow in Your Small Business
by Caron Beesley
July 7, 2023
File drawer pulled out with file reading "cash flow"

For a small business, unreliable cash flow can be catastrophic. Each year, poor cash flow forces many small businesses to close. Even a short-term cash flow problem can make it tough to make payroll, pay rent or buy supplies.

There are many reasons for cash flow issues. A slump in sales, seasonality, unexpected expenses, and late-paying clients. Late payments, in particular, affect many small businesses, making it hard to just keep the lights on, let alone grow.

To help you avoid becoming another statistic, here are six tips and best practices for cash flow management to help you grow your business.

1.  Get a 360-Degree View of Your Cash Movements

One of the first things to do is to understand the big picture when it comes to your cash situation. To accomplish this, you’ll need a cash flow statement and a cash flow forecast.

A cash flow statement, like your bank statement, gives you a view of your cash situation at a point in time and is typically prepared at the end of each month. It’s a snapshot of the cash that has flowed into your business (profits, financing, etc.) and out (bills, payroll, inventory costs, debt, etc.).

Your cash flow forecast, on the other hand, looks ahead to the next month, quarter, or even year. It’s an invaluable tool for helping you predict any problems before they occur so you can put steps in place to mitigate them. Use data from your cash flow statement, such as customer payment patterns, as well as sales projections, inventory plans, and other expenditures to inform your forecast.

Most accounting software includes cash flow statement and forecast reports that you can create based on your existing accounting data. Alternatively, use this cash flow forecast template from SCORE.

2.  Help Your Customers Pay You Faster

Unpaid invoices are a big factor in cash flow.  Studies show that the cost of unpaid small business invoices is over $825 billion. But you can take control and close the gap between invoicing and payment. Here are just a few ideas:

  • Invoice promptly – Don’t put off invoicing until the end of the month, since that will just delay the time it takes for the cash to hit your bank account. Instead, invoice as soon as you have completed the work. If the project is large or ongoing, arrange to bill on a monthly basis or even use milestone billing so that you can invoice at key stages of the project and get those payments faster.
  • Find out how your clients prefer to pay – Many large companies use direct deposit or payment apps like Find out what your client uses, and make sure you are properly set up to receive payments. This will minimize late payment issues due to technical difficulties.
  • Consider the design of your invoice – We’re not talking fancy graphics, but the clarity, neatness, and content of your invoice matter. Include important contact details, payment preferences (with links if possible), payment terms (as agreed in your contract), easy-to-read fonts, and so on.
  • Use an invoicing tool – There are several budget-friendly invoicing tools that can help you get paid faster. QuickBooks, FreshBooks, Wave, and Hiveage all feature a range of tools that make it easier to generate invoices, track and chase payments, issue automatic reminders and integrate with your bookkeeping systems.

3.  Be Vigilant about Aging Invoices

Establish a system whereby you have visibility into which bills are outstanding, or even better, which ones are getting close to the outstanding date so that you can chase payment ASAP. Depending on your client base, an excel spreadsheet is a solid place to start, but things become much more manageable when you use accounting software.

4.  Form a Relationship with the One Who Cuts your Check

Knowing the name and email address of the person who cuts your checks is a huge asset. Most B2B relationships are with sales, marketing, or other non-accounting personnel. But if you can get to know accounts payable staff you are in a stronger position to get answers about where your payment is in the processing cycle and chase them directly if there are any delays.

5.  Have a Financial Cushion

One way to stay ahead of cash flow problems is to maintain a financial cushion, usually in the form of savings. This isn’t always easy, especially if you’re worried about not having enough cash in the first place. Most financial planners recommend that individuals and business owners have 3-6 months of savings in place to cover their expenses. It really depends on your personal comfort level. Try to start small, increase your contributions over time, and use your cash flow forecast to inform your savings plan. 

Another source of cash reserves is a business line of credit. Unlike traditional loans, a line of credit gives you more flexibility and can be used to fund hiring and purchasing or as a safety net when you face challenges like making payroll during a cash flow crisis. Be sure to apply during a period of fiscal health, then borrow against it when you need the cash and pay it back when you don’t.

6.  Be Strategic About your Growth

Rapid growth can often result in cash flow issues. Winning a new contract can mean you need to invest in new employees, but Net 30-, 60- or even 90-day terms can result in a payment delay and a cash crunch on payroll day.

Don’t shy away from growth opportunities, but use your cash flow forecast to keep an eye on how long it will take to for you to pay back the debt that you’ve incurred to grow (remember a line of credit can also help at this time). Look at each customer as an investment, and ask: are you making a profit and how long will it take to collect it?

About the author
Caron Beesley
Caron Beesley is a contributing writer to Fundbox, a fintech firm committed to helping business owners gain financial power.
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Young male entrepreneur reviewing finance reports in home space
12 Month Cash Flow Statement
A cash flow statement tracks how much your business makes and spends. Here you'll find a template to project your cash flow for the next 12 months.
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