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5 Tips for Small Businesses Needing Better Cash Flow

Updated: Feb 16, 2023

If you own a small business or are an independent contractor, you’re well aware of the headaches and stresses that cash flow can cause. The fluctuations can make it difficult to pay your employees, purchase new equipment, expand your business, or even stay afloat. Often these fluctuations in cash flow seem out of your control; clients pay you on their terms (30, 60, sometimes 90 days) or pay you on delivery, which often happens after you really need funds. But there are things you can do to improve cash flow and understanding your options is what is truly important.

Consider these five cash flow tips:

  1. Have a cash flow plan. This may seem obvious, but many small businesses and contractors do not have a plan. List out your expenses and the cash you need to conduct business and then plan for and around it. If you create a cash flow plan you’ll likely put yourself in position to account for those items you need before your customers pay, easing the cash flow crunch. ATBS provides invaluable benchmarking data to help you make the best choices for your business.

  2. Offer discounts to your top customers. Identify your top five customers and offer them discounts for early payment. Often these discounts are not huge, but large enough that customers may take advantage of them. You may have seen these discount terms on invoices; they often look like ‘1% 10, net 30’ where your customer will get a 1% discount for paying in 10 days versus the normal 30 day terms. That 1% may be just the incentive you need to put cash in your account early, putting it to good use.

  3. Consider credit card payment options. You may be able to work with your customers to pay early using a credit card. In this scenario, your customer still enjoys a 30 plus day payment term (since they don’t have to pay their card balance right away) while you enjoy fast invoice payment. You will need to pay a discount to the credit card company – often between 1.5% to 3% - but this is less than the cost to borrow money from a traditional lending institution and puts that cash to work for you faster.

  4. Take advantage of invoice financing or factoring. Invoice factoring, sometimes also called accounts receivable financing, is where you sell your invoices to a third party – a factoring company or factor – who pays you up front the bulk of the invoice amount and then manages the collections. The factoring company doesn’t charge a huge fee – often comparable to credit card discounts – and you can get your cash fast. Do your research to see if this method is the best choice for your company.

  5. Consider a line of credit. Depending on your company history or personal credit scores, you may be able to establish a line of credit. This would give you access to cash as you need it and before your customers pay their invoices. In this scenario, you will need to be careful to manage this line of credit, using invoice revenue to pay down your balance so as not to get ‘over your head’ in debt.

That old saying that ‘cash is king’ is not an exaggeration. Cash is a huge necessity to grow and sustain operations for small (and larger) operations alike. These five tips are just a few that can help you free cash to grow your small business.

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