Every business needs cash to grow. A healthy flow of cash opens the door to:
- New markets
- New products and services
- Expanded advertising
- Additional hires
- And much more
In short, cash is the lifeblood of a business.
If you want to maintain a healthy cash flow for your company, this post lays out 5 key areas to focus on with suggestions and examples for each one.
1. Improve your cash flow visibility and control
Wondering how to maintain a healthy cash flow, but not sure where to start? Evaluate your company's cash flow health as it stands today. For cash flow management, that means understanding your cash inflows and outflows.
- Does your revenue vary throughout the year, or is it steady from month to month?
- Are your expenses predictable, or are there areas that need a larger cushion?
- Which divisions show the highest profit margins?
- Are there any “loss leaders” that require cash to support the rest of your operations?
This kind of visibility into your cash flow is important at every stage of business growth, but larger operations have a lot more moving parts. That can make it tough to keep your finger on the pulse of your business finances.
For example, are siloed departments paying twice for the same service because they don’t realize they could be splitting that cost? Is the insurance plan that started five years ago still the best plan for the company today?
As a business expands and more people have authority to spend, centralized finance teams can find it challenging to oversee expenses.
Entrepreneurs in the early stages of startup growth might get the insights they need from accounting software like QuickBooks alone, but more complex operations can benefit tremendously by adding a solution like BILL Insights & Forecasting to their fintech stack. With BILL Insights & Forecasting, you get timely cash flow visibility through dashboards with metrics including Cash In and Cash Out, Net Cash Flow, and Cash Balance through a direct sync to QuickBooks Online.
Explore: See how Wag! used BILL to boost profitability across 11 independent lines of business.
2. Limit cash outflows by trimming expenses
Once you have good visibility into your expenditures, you’ll start to see places where you can cut costs and improve your cash flow health by limiting outlays that aren’t adding value.
Cut outdated subscriptions
Review business services that bill monthly to make sure your company is still getting value out of them. As people come and go, it’s far too easy to keep paying bills without thinking about it.
Check for any of these cost-bloating culprits:
- Multiple subscriptions to the same service
- Services that duplicate functionality
- Services that have lower-cost alternatives
Compare alternative suppliers and vendors
Shop for new options on a regular basis for everything from internet providers to insurance policies. Remember to check in with department heads to see which services they’re happy with and which ones leave something to be desired. Subpar services are great opportunities to try something better that might be cheaper, more efficient, or both.
Control your energy use
Are you lighting, heating, or cooling your buildings even during off hours? Use timers and motion sensors to reduce energy usage when facilities aren’t occupied, and look for energy-efficient upgrades like LED lights or sustainable energy systems that can pay for themselves over time.
Reduce short-term and long-term liabilities
Most companies depend on business loans or other financing to pay for assets and invest in business growth, at least to some extent. Review your current and non-current liabilities to compare interest rates and usage.
For example, are you paying high interest rates on credit card purchases you could finance a better way? Are there long-term loans you could refinance to your advantage?
As your company improves its financials, lenders will be more willing to offer better rates, especially if those improvements include greater cash flow visibility, transparency, and control.
Explore: See how O&M Restaurant Group used BILL to get great financing in a tight market.
Control expense accounts
Some of the toughest challenges in maintaining a healthy cash flow are expenses you don’t see until after the fact, like employee reimbursements. Bring expense accounts under control by setting specific budgets ahead of time.
Sound easier said than done? Tools like BILL Spend & Expense can help you set and stick to those budgets, so you can release any “cushions” you’ve been holding to cover unknown expense accounts and earmark those funds for other things.
Explore: See how Noom used BILL Spend & Expense to start forecasting budgets months in advance.
Look for vendor discounts
Many suppliers offer discounts based on volume, early payment, or contract length. Call your suppliers and service providers regularly to discuss your accounts and explore opportunities for improved payment terms.
3. Control the timing of your cash outflows
When it comes to taking quick advantage of new opportunities, cash is king. So how do you build a strong cash reservoir for growth? The same way you’d build a reservoir of water: speed up your inflow and reduce your outflow. Solutions like BILL Insight & Planning feature cash flow dashboards that display cash inflows, outflows, and more—the metrics you need to identify how to maximize your cash reservoir.
Take advantage of early payment discounts
One way to reduce your cash outflows is to take advantage of early payment discounts. The key, of course, is knowing when you can afford the early cash outlay. If paying one bill early causes a late payment on something else, you could end up with a net negative cash flow.
Use credit cards to delay payments without being late
You can also slow cash outflows by paying bills later rather than sooner. Instead of making upfront payments, consider using a business credit card or other line of credit to push those payments out a month or more.
Although many business-to-business vendors refuse to take credit cards, delaying those payments is still a viable option. BILL’s Pay By Card lets you use a credit card to pay vendors any way they prefer.
Explore: See how Translators USA uses BILL’s Pay By Card to pay contractors that don’t take credit cards.
4. Improve your cash inflows
Want to improve your cash inflows without raising prices? Reduce time-to-payment and minimize overdue accounts receivable with these simple strategies.
Send invoices out immediately
One of the fastest ways to speed up your cash inflows is to invoice your customers as soon as your products or services have been provided. Delays in the accounts receivable (AR) process can easily translate into delayed payments, especially since payment terms commonly base the due date on the invoice date.
In many businesses, invoices don't go out immediately because all the invoices for a given period are processed at the same time, like at the end of the month. This kind of batching system can delay payment by weeks or even longer.
Fortunately, AR automation makes on-demand, individual invoicing easy and efficient—much more efficient than waiting on batching. Information flows from ordering to invoicing automatically, turning the invoice process into a quick daily task that takes just a fraction of the time.
Offer discounts for early payments
Early payment discounts are another common way to speed up inflows. By offering discounts for early payment, you can often get those payments into the pipeline sooner rather than later.
One of the most frequently used discounts is “2/10, net 30,” meaning customers can choose to get a 2% discount if they pay within ten days, or pay the full amount by the due date in 30 days. Many business owners will try to get the discount if they can.
On your end, the value of the discount lies in speeding up payments—for a positive cash flow to build up your cash reserves.
Conduct thorough credit checks
Many businesses get paid after their products and services have already been provided. For those companies, credit checks can help reduce bad debt and loss of income.
Think of it this way—if you’re being paid after the fact, you’re extending a line of credit to your customers. You want to know those customers have managed credit reliably in the past.
If they have a history of late payments or a weak cash flow statement, you’ll want to adjust your terms to account for that risk.
Still, there’s a cost to conducting credit checks. Small business owners might not find it worth it if:
- They don’t have the time or expertise to conduct credit checks
- They don’t have the resources to hire out those credit checks
- They sell to relatively large numbers of customers in relatively small amounts
If you aren’t sure about credit checks, consider demanding upfront payment by cash or credit card to reduce the chance of bad debt.
Explore: Learn more about accepting credit cards and other alternatives.
5. Automate your AP and AR workflows
Automating your AP and AR workflows can help you do all of the above and more, making it key to a healthy cash flow. With better visibility and control over your cash flow, you can optimize your cash reserves and plan ahead.
At the same time, automating your AP and AR makes bookkeeping faster and easier than ever. Automation software can check for billing errors to help you make sure you’re not overpaying on a contract or paying the same bill twice, and it can even sync with your accounting software or ERP system to keep your books up to date.
Easier AP with better control and insight
When you automate your AP workflows, you’ll see your cash outflows in a whole new way. Know what’s coming up and when. Choose the best payment method and timing for each bill to take advantage of discounts or hold onto your cash longer to save it for other needs.
If a bill is stuck in the pipeline waiting on an approval, you’ll know that too. Ping the approver from the app and they can take care of it on their phone. AP automation gives you better control over your AP process and helps you keep all those complex pieces moving — without the stress.
With better cash flow projections, you can see upcoming expenditures, predict shortfalls, and manage your outflows before there’s a problem. If you have more than enough cash in your bank account, take advantage of those opportunities to move your business plan ahead and invest in future growth.
Easier AR with faster, more reliable inflows
Automating your AR provides similar benefits for your cash inflows.
Set up monthly invoices to go out automatically, and keep one-off invoices moving with a quick, easy process that doesn’t need batching to be efficient. If a customer misses a due date, the system will even send reminders automatically.
When your AR automation comes from a business payments platform, like BILL, those invoices can include secure payment links that let your customers pay with just a few clicks. Payment flows directly into your bank account, and the system syncs with your accounting software to streamline your bookkeeping.
BILL can help you evaluate and maintain healthy cash flow
Keeping a healthy cash flow and a reserve of working capital is key to weathering temporary cash flow problems and shortages, as well as enjoying strong financial health. Common business challenges like a few slow months or a big customer paying later than usual shouldn’t trigger a financial crisis.
Ready to level up your cash flow management? BILL Insights & Planning can help maintain a healthy cash flow with a fully customized dashboard that offers a visual guide to your financial trends, plus data-driven modeling to help you plan future cash flow, empowering you to make better business decisions.
BILL Insights and BILL Cash Flow Forecasting are currently available to select SMB and accountant customers of BILL and will become more widely available in calendar Q1 2024.
To preview BILL Insights & Forecasting, check out our clickable demo.
Healthy cash flow FAQ
What is a healthy cash flow?
A healthy cash flow is more than just a positive cash flow. It’s consistently maintaining positive cash flows over time and strategically timing cash inflows and outflows, allowing the business to meet not only its short-term obligations, but also cover unexpected expenses and invest in opportunities for growth.
How to decide if a company’s cash flow is healthy
To decide if a company’s cash flow is healthy, assess the balance of its cash inflows and outflows over time.
- Has it maintained positive cash flows?
- Has it effectively timed its cash inflows and outflows?
- Does it experience mostly stable cash flow, not wild fluctuations?
If so, chances are, the organization consistently has enough cash to pay its debts and other short-term liabilities on time while quickly handling unexpected expenses and taking advantage of growth opportunities. In other words, you can consider its cash flow healthy.
What is a healthy cash flow ratio?
A healthy cash flow ratio is a higher ratio of cash inflows to cash outflows. There are various ratios to assess cash flow health, but one commonly used ratio is the operating cash flow ratio—cash flow from operations, divided by current liabilities.
You can find the cash flow from operations on the company’s cash flow statement, while the current liabilities refers to short-term debt and other obligations that it needs to pay in a year’s time. A ratio above 1.0 is considered healthy, indicating it has enough cash to meet short-term obligations, plus some cushion for unexpected expenses and investments in growth.
