How small businesses can protect their cash flow

Image by Arek Socha from Pixabay

By Brooke Chaplan

There is a reason people say cash is king. If you have cash, especially in times like now when money and lending has become tight, you and your business have a strategic advantage over the competition. The life of your small business may depend on your ability to ensure that your cash flow continues to ride out pandemics or economic downfalls. The following are a few cash flow management tips that may help your small business protect itself in emergencies.

Stay familiar with your credit policies and the credit history of clients

First, you need to make sure you are familiar with the credit history of your clients. To have good cash flow management, you will need to have a strong understanding of your customer’s credit. If you have unprofitable customers, you must weed them out before they disrupt your company’s cash flow. Unprofitable customers are those who cost more money to maintain than they bring in. Monitor and flag customers who have a history of slow or late payments. By doing this, you will ensure that you are protecting your business’s finances for the long run, even if it loses you a single customer.

Before taking on a new customer or client, perform a credit check. Remember, your business is not required to extend credit to anyone. Clients who have a history of slow or late payments may need to have their credit terms reevaluated or credit eliminated entirely.

Negotiate payments with suppliers

Make sure that you are familiar with your own credit policies and the policies of your own lenders as well. Become familiar with the credit terms that your suppliers allow. Usually, suppliers will give you 30 days to pay. If you have a history of on-time payments, they may allow you to extend that term to 60 days or 90 days. This allows you to keep more of your cash in the cash flow pipeline.

Use cash flow management tools

There are several effective tools that your business can use for business cashflow protection. These tools allow you to track and forecast cash flow. Many of these applications are cloud-based, allowing you to gain access to the information you need when you need it. Some of these products include cloud specialized tools for forecasting and budgeting that can integrate with popular accounting software products.

Focus on variable costs

There are fixed costs, such as salaries, equipment costs, insurance, and rent, that you can’t do much about. You can ease some of your cash flow pressure by turning some fixed costs in to variable costs. For example, payroll could be adjusted by hiring temporary seasonal help when business is good and then using a smaller staff during slower months. You might lease equipment as opposed to purchasing it outright, which could also give you some financial flexibility.

If you are facing a cash flow threat, take action. Waiting or hoping for the best will cost you valuable time and may impede your ability to successfully weather the financial storm.


Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information, contact Brooke via Facebook at or Twitter @BrookeChaplan.


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