6 strategies to help clients improve cash flow in 2025

December 5, 2024 11:52 AM

Cash flow is the reason why many small businesses fail. Slow or nonpayments are a real concern, and as a firm owner, it's in your best interest to help your clients receive their payments faster and reevaluate spending.

While optimizing costs, adjusting pricing strategies, and improving operational efficiency are valuable steps, I recommend beginning with a thorough cash flow analysis to gain a clear picture and guide impactful changes.

Conduct a comprehensive cash flow analysis

Cash flow with concept of water tap dripping dollar banknotes on blue background.

Danny/stock.adobe.com

There's a saying: "What gets measured gets improved." This sentiment rings true for cash flow. If you don't know your client's current state of cash flow, you might be trying to improve upon something that doesn't need help.

You'll need to prepare a cash flow statement before you can conduct any analysis.

During your analysis, focus on:

Net operating cash flow to net sales ratios: You need to know how much cash is generated for each sale. Low percentages mean that something needs to be changed.
Free cash flow: Is there enough free cash flow? If not, what steps can be taken to improve it?
Operating cash flow margins: How much cash is being generated from operating activities?

If the company lacks operating cash flow and is only using financing cash flow, you'll need to consider how cash is moving to creditors, investors and owners. An analysis will show you and your clients what's happening internally that may impact cash flow.

Reevaluate spending and optimize costs

By-line/Yabresse - stock.adobe.com

You have your cash flow statement and analysis. Now, you'll want to dig into the data further.

Review all expenses.
Identify redundant or unnecessary costs.
Eliminate costs that are outdated and redundant.
Review alternatives that may be more efficient.

One sneaky expense category that creeps up on many businesses is recurring expenses. For example, a client may be signed up for a SaaS platform that is charged annually and keeps pushing off canceling because they assume someone in the business is or will use the platform in the near future.

Conversely, there are frequently used SaaS applications billed monthly that offer significant discounts for annual payments, yet businesses might neglect to switch to the more cost-effective option simply because they aren't reviewing their spending.

Optimizing costs by eliminating unnecessary expenses is a fast way for small businesses to maintain higher cash flow.

When helping clients review these expenses, they might not immediately grasp the data or see the impact on their cash flow. Be sure to provide thorough explanations, along with graphs and charts, to make digesting the data easier for them.

Revisit pricing strategies for profitability

lekkimly_simborin/kimly - stock.adobe.com

To maintain healthy cash flow and profitability, clients should be using pricing strategies that attract their ideal customers — ones who pay on time and value their service.

If clients haven't adjusted their prices recently to account for higher demand, inflation, and value-added offerings, then it's also time to consider raising prices in the near future.

Consider having templates that you can provide your clients with to communicate a price increase.

Implement technology to streamline payment processes

Sergio Donà/itestro - stock.adobe.com

Streamlined payment processes make it easier for customers to pay invoices and for your clients to optimize their collection processes. Finding the right tool is key.

Technology can simplify payment and invoice processes, saving your clients valuable time they can use to focus on more important tasks.

Refine accounts payable and receivable processes

TeacherPhoto - stock.adobe.com

Technology can help streamline payment processes, but you can also help clients improve their cash flow by refining their accounts payable and accounts receivable processes.

To refine AP processes, you can advise clients to:

Review and negotiate vendor payment terms to secure discounts for early payments or to extend payment windows.
Adjust the timing of vendor payments to align with their cash inflows.

For AR processes, you can advise clients to:

Monitor aging receivables. Through regular reviews of receivables, clients can identify overdue invoices and accelerate collection efforts for payments that are 30+ days late.
Establish clear payment terms and make sure those terms are known upfront.
Segment customers based on their payment history. Then, develop follow-up strategies for customers who are consistently late with payments. For example, clients can offer payment plans and send reminders to encourage customers to pay on time.

Stay ahead with cash flow planning

Fotoluminate LLC - stock.adobe.com

A little planning can go a long way in helping clients improve their cash flow. Start by preparing monthly cash flow forecasts.

Forecasting can help clients identify potential cash gaps early on and take steps to correct these issues before they escalate. Clients can also use these insights to guide their strategic decisions and the timing of things like:

Hiring new talent;
Purchasing new equipment; and,
Making investments.

While forecasting can help predict the future, it's not a crystal ball. Unexpected events can arise and impact your clients' cash flow. You can help them prepare for these events by advising them to establish a cash flow emergency fund. Having a reserve specifically for cash flow disruptions will make it easier to weather the storm and bounce back.

Cash flow is the lifeblood of every business. Proper management of it is the key to long-term success and growth. As an advisor, you can guide your clients toward better cash flow management using the strategies above. And by leveraging the power of technology and automation to aid in cash flow management, you can help clients achieve greater stability and financial health.