Cash-flow problems are not surprising in small businesses. A healthy cash flow is considered when cash coming into your business is greater than cash going out. Managing cash flows is not a cinch, but it is not impossible either. A few tactics could help you avoid cash-related problems.

You must have enough cash to be able to pay for all your business expenses despite dropped sales. It is generally advised that you must have earmarked cash to meet fixed operational overheads when your business growth has plateaued.

Cashflow is the lifeblood of any business. It is vital to monitor, analyse and optimise cash flow so you never struggle to pay for essential business expenses. Payments of a small business loan in Ireland are one of them.

Strategies to minimise cash flow problems in small businesses

Here are the strategies for small businesses that help minimise cash flow problems:

• Get invoices paid faster

One of the biggest reasons for disrupted cash flows is that you do not get paid fast. In order to maintain good relationships with your customers, you choose a longer billing cycle. Do not forget that you must have cash readily available to pay for your business expenses.

A golden rule of thumb says that you should receive cash from your customers before accounts payable are due.

If you choose a longer payment cycle, you will naturally struggle to keep the ball rolling. Therefore, you should reduce the payment cycle. If invoices are due for payment within 30 days, cut the payment period to 15 days. The shorter the settlement period, the better it is.

In order to get paid faster:

• You should offer discounts. Nominal discounts can also encourage your customers to pay your invoices days before the due date.
• Keep sending reminders to customers in case it has slipped their minds.
• Persuade your clients to opt for an automated payment method. This will not waste your time chasing them.
• Charge penalties and late payment fees for those who do not pay invoices on the due date.

Make sure that the due dates for accounts receivable align with the payment dates for accounts payable. Otherwise, you will have insufficient cash to pay for your business expenses.

• Negotiate with your suppliers for longer payment terms

You should talk to your suppliers about whether they can allow you to extend your payment length. Delaying payments will help you meet your business expenses easily, especially if you have a short-term loan in Ireland to pay off.

If you have a good relationship with your suppliers or you have been paying them on time, you can easily convince them to increase the length of the payment period. In fact, you can also request them to pay in instalments rather than pay in one fell swoop on the due date.

• Take stock of your debt

Regardless of the size of your business, you might be relying on some debts to pay off. You should carefully analyse how much debt you have and its implications on your cash flow. Small business loans in Ireland are expensive. Even though they are to be paid down in fixed instalments, they can make it challenging for you to pay for other expenses.

As debt is a priority expense, you might be left with little cash to pay for other expenses after paying down debt. To ensure that debt does not take a toll on your business, you should consider the following steps:

• Analyse whether you actually need to take out a business loan.
• If you can put it off, you should delay the purchase. In the interim, arrange money.
• Consider other alternatives and compare costs so that you do not use expensive deals.

Business credit cards and a business line of credit should be used carefully. As they bring convenience, you might be prompted to use them to borrow money, but they might be more expensive than ordinary business loans.

• Review your inventory

Inventory is another reason why businesses struggle with cash flows. Too much inventory can tie up your cash. If you have too little, your sales will be affected. It is crucial to strike the right balance. Carry out regular examination of inventory, so you do not block your money. Sales do not remain the same throughout the year.

You should notice periods when sales are high and low. You can obtain this information based on the sales trends of the previous years. This will help you choose the right amount of inventory. Finding the right balance will help with maintaining a healthy cash flow.

• Look for smart financing options

No matter how carefully you have forecast your sales, you might still struggle with cash flow problems. Even established businesses could find it challenging to have a healthy cash flow. In such scenarios, you will certainly need to finance your business. Do not always rush to small business loans. You should rather consider using cheaper alternatives.

For instance, you can consider invoice financing. This will provide you with quick access to cash. The good thing about invoice financing is that you do not have to pay interest. You will get invoices funded up to 85%, and the remaining amount will be paid back after collecting money from your customers, minus fees. Payments from your customers will be collected by an invoice financing company.

You will receive cash instantly and use the money to fund your business needs. Invoice financing is much cheaper than small business loans. Likewise, you can use a business credit card or line of credit. They will charge interest rates, but they can provide you with an instant injection of cash.

The final word

Short-term cash flow problems are very common in small businesses. If you have been struggling with disrupted cash flows, you should carefully identify the cause of it. Try to come up with some strategies, such as getting invoices paid faster, reviewing inventory, negotiating for longer payment terms with your suppliers, and considering smart financing options.