5 Ways to manage cash flow: Small Business edition

When it comes to driving small business growth, cash flow is the gas that keeps the car moving forward. The basics of cash flow are straightforward: keep the gas tank from running dry. Maintaining a “full tank of gas” involves keeping a close eye on your business’s current cash flow, along with planning for the long road ahead.

Get started with these five tips for smart management of the cash that’s already in the bank, efficient debt collection, and strategic planning.   

1. Prioritize your cash flow statement

Covering vendor payments, debts, bills, and payroll every month depends on your ability to keep cash coming in the door—and know when it’s coming. Your cash flow statement provides the insight to exactly when and why money is moving in and out of your operation. This document is where you’ll record cash sales, loan funding, and other cash balances, tallied against monthly expenditures. Ideally, after subtracting expenses, you’ll still have money in the bank. When your statement consistently shows positive cash flow, you can more confidently hire staff, move to a new location, or upgrade equipment.

Staying current on your monthly cash flow statements and building a base of historical cash flow information makes it easier to track your spending patterns. Having this history also helps project cash flow for the future, keeping your business viable for years to come.

2. Optimize receivable

The shorter you can make the window between closing the sale and collecting the payment, the more your cash flow will improve.

Audit your list of accounts. Pinpoint clients who tend to be consistently behind in payments. Consider whether it’s in your business’s best interest to continue extending generous credit to late-payers; it may be time to renegotiate their payment terms.

Update your records. Regularly check in with clients to ensure you have up-to-date contact information, so your invoices aren’t lingering in the inbox of an Accounts Payable manager who has moved on.

3. Take advantage of extended payment terms

While you’re waiting for payments to roll in, you still need to cover day-to-day business purchases and supplies. This is where you can leverage time to your advantage. Through strategic use of credit and extended payment terms, you can conserve today’s cash and delay payment until your cash flow statement shows you it’s the right time to pay.

• Use a credit line to buy now what you need to keep your business running and take advantage of no interest or fees on repayment. Amazon Business’s Pay by Invoice offers 30-day payment terms to eligible organizations (additional extended payment terms available with an eligible Business Prime membership plan). 
• Consider applying for a business credit card that offers Extended Payment Terms. The Amazon Business American Express Card offers 60 Day Payment Terms on U.S. purchases at Amazon Business, AWS, Amazon.com, and Whole Foods Market. Card Members with eligible Prime memberships receive 90 Day Payment Terms with the Amazon Business Prime American Express Card. Terms apply.
• Sometimes it pays not to delay. If a supplier offers an incentive to pay off your debt early, take advantage of it when you can. If there’s no stated incentive, but you have the cash to make the payment early, reach out to your debtor to try to negotiate a discount for early paymet.

4. Tap into business-only discounts and pricing

• Amazon Business: Members have access to exclusive discounts and offers on millions of items.
• Recurring Delivery: If you consistently need a particular item, subscribe to Recurring Delivery for automatically scheduled deliveries at a discounted price. 
• Quantity Discounts: Save on millions of eligible items. Quantity Discounts are available starting at just two units on select items.

5. Maintain a cash reserve

Half of all small businesses maintain a “cash buffer” of less than one month, according to a study by the JPMorganChase Institute.¹ That means if all inflows of cash stopped, these small businesses would run out of cash in less than 30 days. In the same study, a full 25 percent of small businesses were estimated to run out of cash in less than 13 days, if their inflows dried up. 

It’s a sobering thought—but it doesn’t have to be your business’s reality. As you consider how to spend your profits and grow your business, prioritize building up your cash buffer to shield the business from both seasonal or cyclical downturns and unforeseen emergencies.

Making cash flow management part of your daily, weekly, and monthly routine will pay off when you have sufficient capital to make your next business dream come true. Get started today with this 12-Month Cash Flow spreadsheet from SCORE, a nonprofit resource partner of the US Small Business Administration. 

^{1.       “Cash is King: Flows, Balances, and Buffer Days, Evidence from 600,000 Small Businesses.” https://institute.jpmorganchase.com/institute/research/small-business/report-cash-flows-balances-and-buffer-days.htm#finding-3}