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How to Improve Your Business’s Cash Flow in the New Year

How to improve your business's cash flow in the new year

The new year has already started, but we are still seeing more COVID-19-related uncertainty ahead, and many small business owners are fearing the worst. Everyone is experiencing payment challenges, but luckily there are several things SMEs can do right now to maintain a healthy cash flow. We’ve prepared some tips that will help keep the right things in focus.

Keep up to date with COVID 19 guidance

The Government has published an in-depth online resource to address support for businesses. You’ll find everything you need to know about the Government’s package of measures here. You might also want to save this page which is the Government’s COVID-19 information portal.

Update your financial statements

If your business’s financial statements are not already up to date, now is the time to get them in order so you can make the best financial decisions. An up-to-date balance sheet, profit and loss statement, and cash flow statement will enable you to correctly evaluate the financial state of your business and make informed choices.

Make a list of all the possible impact zones of your business and create mitigation strategies for them

COVID-19 is an unprecedented situation. For SMEs, one of the worst things about the pandemic is the uncertainty surrounding it. You should list the things that could impact your business in the future and plan for them with a mitigation strategy. This way, you will have some resilience should the worst happen. Consider thinking about:


How can you reduce the impact of a downturn?


COVID-19 is likely to make some of your employees sick. Could you cope if this happens? Could you keep the business running while short-staffed? Could they work from home?

Supply chain

Your suppliers could face the same problems as you. Your business may be badly affected if your suppliers are in severely impacted areas of the world. Think about bolstering your supply chain and creating redundancy plans.

Payment challenges

Do you have enough cash in the bank to pay wages for a few months if you generate no revenue at all? How long could you sustain your operations with a 50% decrease in revenue? What can you do to bolster your cash reserves?

Act now to improve cash flow

After you’ve made a list of all the things that could impact your business, your attention should turn to cash flow and find ways to improve it.

There are several opportunities to do this:

Stock Management

  • Take a stock count to know exactly what you have and what you need. This will help you avoid unnecessary expenditures.
  • Take steps to increase sales while maintaining a profit. Consider special offers to drive up demand.
  • Reduce your stock orders if you don’t have the demand. There is no point paying for stuff you won’t be able to shift.
  • Increase purchases of stock that you have reason to believe will continue to sell well during the COVID-19 crisis.
  • Get rid of old and slow-selling stock as soon as possible so you can focus your efforts on shifting faster selling, higher-profit products.


  • Cut back on your advertising spend if it doesn’t give you a return.
  • Put your expansion plans on hold.
  • Cut back on capital expenditure.
  • Could you reduce travel costs?
  • Could you realise cash savings by simplifying your online payments?
  • Is there an opportunity to convert some full-time staff to part-time?
  • Is there an opportunity to reduce operational costs?

Creditor Management

  • Ask for a repayment holiday on finance and loans if you’re struggling.
  • Check your supply contracts to see if there is an opportunity to cancel orders or at least delay delivery to reduce spend.
  • Check with HMRC if there is a way to delay tax or VAT payment. The HMRC Time To Pay Scheme could be a good place to start.

Debtors Management

  • Contact your debtors to potentially request quicker payments.
  • If your debtors are struggling to pay, offer them an instalment plan.
  • Invoice as soon as work is delivered.
  • Enable recurring payments to ensure you are paid on time.
  • Reduce your payment terms to 30 or 14 days or even sooner if possible.
  • Make it easier for your debtors to pay you. Use a payments gateway service and offer them the opportunity to pay via their preferred method – card, PayPal, bank transfer, cheque, etc.
  • Update your terms and conditions to reflect your new payment terms, so all new debtors fall in line with your changes.

Financial Management

  • Set up monthly or quarterly reporting to keep tabs on revenue.
  • Deliver excellent customer service, but don’t let customers take advantage by accepting late payments or unfounded chargebacks.
  • Use a payments gateway service that offers robust security and authentication so that you cut back on your chargeback rates.

COVID-19 is an unprecedented situation, and all business owners are facing great uncertainty right now. In times like this, it pays to be savvy and resourceful while taking a higher level of interest in the smallest workings of your business. We wish you well and hope to see you on the other side.

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