Three Simple Ways to Improve Cash Flow for Small Businesses

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Three Simple Ways to Improve Cash Flow for Small Businesses

Getting cash flow positive is something every new business owner aspires to from day one. Once that important milestone is achieved, improving positive cash flows remains an ongoing and growing objective.

Did you know that over half of Canadian small businesses cite cash flow management as a top concern? Out of all the challenges that small businesses face on a daily basis, cash flow problems tend to keep owners awake at night.

But with the right tools, you can easily manage your cash flow and have sufficient working capital to keep your business running. Here are some tips on how your small business can use cloud technology can improve cash flow.

Increase your cash flow by going Paperless

In recent years, there’s been a trend with businesses and non-profits moving to a completely paperless ecosystem. Apart from being environmentally friendly, removing the need for physical paper administration can save precious time and money. A paperless cash flow ecosystem increases efficiency and cost-effectiveness by reducing the time and resources spent on manual data entry and physical storage of paperwork. Bookkeeping software automates many bookkeeping tasks, such as categorizing transactions and generating reports, which reduces errors and frees up time. Reducing paper usage and storage needs also lowers ongoing material and office space costs, contributing to a more sustainable business practice.

Going paperless through electronic invoices

Using cloud-based online accounting software, like QuickBooks Online or Xero, allows businesses to create and send online invoices directly to clients via email. The online invoice will also contain a “Pay now” link to make it easy for clients to settle the invoice. The easier you make it for clients to pay you, the faster you are likely to receive payment.

Both Xero and QuickBooks Online enable automated invoicing for recurring invoices, as well as gentle follow-up reminders for outstanding invoices.

Going paperless through online payments

You can also go paperless by accepting credit cards or online payments instead of using cheques.

It can take several business days for a cheque to clear because it has to move between the various parties (from your customer to you, from you to your bank, and then from your bank back to your customer’s bank to request payment). Cheques are also more expensive due to the handling fee associated with them.

Domestic online payments, on the other hand, will take one business day to clear (sometimes instant, depending on the payment method) and have a lower processing fee associated with it.

Automate your billing process

Many small businesses know they should improve their cash flow. But with so many aspects in the cash flow ecosystem that can impact the cash flow cycle, it can be difficult to know what to tackle first.

To start with, there are two simple optimizations with your receivables you can address today that are sure to have an almost immediate positive impact on your cash flow:

  • Sending out your invoices on time
  • Making it easy for your clients to pay you

Send out your invoices on time

It sounds simple enough, but with time being a rare commodity in any small business, billing often gets delayed. The sooner you send out invoices, the sooner the payment terms will kick in, the quicker you will receive payment, the healthier your cash flow will be.

Make it easy for your clients to pay you

If your clients have to move from one platform to the next, manually entering details into their bank, double-checking that the amount is correct, and manually logging it into their accounting software, your invoice is likely to be set aside until they have at least half an hour of free time to complete the whole process.

As previously mentioned, your online accounting software can be used to send electronic invoices with links that take your clients directly to the payment options. If customers can pay an invoice within five minutes of opening their email, chances are your invoice will be settled much quicker.

Both of these aspects can be addressed through automated billing. Manual processes are prone to human error, which can take time to fix, delaying payment even further.

An example of an automated billing platform is Plooto.

Plooto can be integrated with your accounting software to automatically import unpaid invoices and bills. It makes it easy for clients to pay through email, credit card, or pre-authorized debits. It can also be programmed to send automatic, gentle payment reminders.

Improving cash flow is not just about accounts receivable. You should also monitor your accounts payable and look for suppliers offering discounts on early payments.

Software such as Beanworks can automate payments on the accounts payable side, allowing you to take full advantage of maximum vendor payment terms while still making sure you pay suppliers on time to avoid late payment fees or interest.

Create a cash flow forecast

Cash flow forecasting allows businesses to take a proactive, rather than reactive, stance toward their current cash position. This will give you time to respond to any identified potential future cash shortfalls.

Software like Dryrun allows cash flow data from QuickBooks Online or Xero to be imported and then adjusted so businesses can test different scenarios based on when cash is expected to come in and when bills are due.

Instead of just paying vendor invoices when they come in (which is rarely a good strategy) and running the risk of depleting cash reserves, business owners can strategize and plan when to pay certain bills without ruining the relationship with a supplier.

It also gives you time to plan how expected future cash surpluses can be put to good use to grow the business overall.

There is arguably a better feeling for any small business owner than seeing a positive cash flow at the end of the month, and nothing reduces stress levels more than knowing your cash flow is under control and being managed effectively. With these cloud technology tools in your arsenal, you can focus on improving other areas of your business without having to worry about your cash flow.

At Enkel, we help small business owners automate their billing process through cloud-based technology and our professional team of accountants and bookkeepers. Whether your company is located in Vancouver, Edmonton, Calgary, or Toronto, we've got your bookkeeping needs covered! Contact us today to learn more.

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Omar Visram
About Omar Visram
Omar Visram is the Co-founder and CEO of Enkel Backoffice Solutions Inc. Headquartered in Vancouver, Enkel provides bookkeeping, payroll, accounts payable and accounts receivable services to over 300 organizations Canada-wide.