Steps to improving cashflow
What is cashflow?
Cashflow is the movement of money into and out of a business. Positive cashflow means more cash is entering than leaving, supporting operations, investment and financial stability.
Why is managing cash flow important?
Cashflow is the lifeblood of any business, yet it’s still one of the most common reasons otherwise profitable organisations fail. In fact, more businesses run into trouble through lack of cash rather than lack of profit. The good news? Cashflow does not happen to you. It can be actively managed.
By focusing on a small number of operational steps, business leaders can take back control, shorten the time between effort and reward and build real confidence in their cash position.
Matt Grant, Head of Accounts and Business Advisory Services in Yorkshire, explores three critical cashflow steps and the practical actions that make the biggest difference.
Step one: The sales cycle – getting paid sooner, more reliably
Selling is what businesses exist to do, but selling well isn’t just about winning work, it’s about collecting the cash efficiently.
The simplest rule is often the most powerful: invoice as soon as you can.
Once a product is dispatched or a service delivered, an invoice should follow immediately. Every delay extends the time your business is effectively funding the work itself often using its own cashflow or bank debt, neither of which is a strong long-term position.
Key actions to tighten your sales cycle:
- Start the sales cycle earlier. The sooner you begin, the sooner cash arrives.
- Invoice immediately on delivery or completion. Don’t wait for month end routines.
- Use interim invoices or staged payments where appropriate, particularly in sectors like construction or project-based services, where work is clearly visible as it progresses.
- Automate wherever possible. A clean, automated sales cycle removes manual intervention, reduces error and speeds everything up.
- Strengthen onboarding documentation. Many businesses rely on generic, templated terms and conditions that don’t reflect what they actually deliver.
- Get legal input. Working with a commercial lawyer ensures your contracts support timely payment and give you real leverage if debt collection becomes necessary.
A clean, well-designed sales cycle keeps cash moving, almost automatically.
Step two: The purchase cycle – controlling what goes out
Cashflow isn’t just about what comes in. It’s equally about how and when money leaves the business.
Large, regular costs such as staff wages and rent in hospitality, or materials in manufacturing, need to be managed within a tight purchase cycle. Done well, this improves both profitability and cash position.
Key actions to tighten your purchase cycle:
- Negotiate better supplier terms. If you’re a reliable customer, push for payment terms that suit you for example changing from 30 to 45-day terms.
- Avoid over-ordering. Set limits on purchasing to prevent stock building up and tying up cash unnecessarily.
- Negotiate staged or deferred payments rather than paying everything upfront.
- Test the market periodically. Supplier relationships are important, but trust can be misplaced. Check that what you’re being offered still reflects market rates.
- Use competitive quotes as leverage. Even marginally better terms elsewhere can strengthen your negotiating position.
- Track work in progress (WIP) - WIP is cash that’s been spent but not yet recovered. Once work is complete, release that WIP and invoice immediately. Tracking helps avoid nasty surprises and ensures costs don’t quietly double before you notice.
Step three: The stock cycle – only hold what makes you money
Stock enables sales, but it also ties up cash. The key is ensuring you’re holding the right stock, in the right quantities, at the right time.
Key actions to tighten your stock cycle:
- Use stock management software to set minimum and maximum order levels.
- Introduce re‑order points so stock is replenished automatically before it runs out.
- Analyse margin by product. Identify which products generate the highest returns.
- Align incentives to margin, not just volume. Encourage sales teams to push the higher-margin lines.
- Cull low margin stock. If a product isn’t making money, it’s costing you in rent, rates, warehousing and staff time.
Every item you hold should earn its place on the shelf.
Why cashflow forecasting matters more than ever
Looking back at historical numbers is of no use. Cashflow confidence comes from looking forward.
Costs change constantly - from supplier price increases and National Minimum Wage rises to energy costs and equipment replacement. Scenario planning and forecasting help you anticipate these pressures before they become problems.
If you know, for example, that a key piece of equipment will need replacing in 12 months’ time, you can:
- forecast the cash outlay
- identify the gap in advance
- decide how to fund it, whether through retained cash, bank finance or hire purchase
Without forward planning, these issues often surface too late - when cash is already under strain.
Technology’s role
Today’s technology makes cashflow management more accessible than ever. Cloud accounting platforms such as Xero integrate with hundreds of specialist tools - from stock management to credit control.
The challenge isn’t availability - it’s knowing what to use and how to use it well.
Our expert team help business leaders select the right technology tools, set you up for success with the technology and offer ongoing support and training.
Don’t settle for the status quo
There is almost always something you can do to improve cashflow. Set aside time regularly to review your sales, purchase and stock cycles and look for tweaks that can deliver meaningful gains.
In summary:
Businesses can improve cashflow by invoicing promptly, actively managing incoming and outgoing payments, controlling purchasing, optimising stock levels and maintaining accurate financial forecasts. Strong cashflow management helps organisations meet obligations, reduce financial risk and support sustainable growth.
We’re here to help
If you’d like to discuss your cashflow, support with forecasting or advice on the right software and systems for your business, contact our team today. A few targeted changes today can make a significant difference.
For more on this topic, listen to our associated Fresh Perspectives episode – the business podcast from Azets.
