For growing companies, cash flow management is not simply about balancing incoming and outgoing funds.
It is about building a stable foundation to sustain expansion, withstand economic shifts, and invest confidently in future opportunities. Despite showing strong sales growth, many enterprises falter due to insufficient liquidity to cover operational needs, unexpected expenditures, or financing gaps. To avoid such pitfalls, firms must adopt a proactive, structured approach to cash flow optimisation.
This Covering the Bases article outlines a comprehensive suite of strategies to strengthen cash flow for growing companies across key operational and financial dimensions.
Understand and map cash flow cycles
The first step in optimising cash flow is developing a thorough understanding of the company’s cash flow cycle. This involves mapping out:
- Accounts receivable cycles: When customers typically pay invoices.
- Accounts payable cycles: When the company settles debts with suppliers.
- Inventory turnover: How long products sit in inventory before being sold.
- Revenue recognition timing: Especially important in service-based or subscription models.
Companies must identify gaps where cash exits faster than it enters. For example, if a business must pay suppliers in 30 days but receives payments in 60, it faces a liquidity mismatch that needs bridging.
A detailed cash flow forecast, be it weekly, monthly, and quarterly, enables decision-makers to anticipate periods of shortfall and adjust operations accordingly.
Tighten accounts receivable management
For growing businesses, cash is often tied up in unpaid invoices. Optimising receivables involves the following:
- Clear payment terms: Specify terms on every invoice (for example, ‘Net 30’) and ensure customers agree to them in advance.
- Automated invoicing: Use cloud accounting tools (for example, Xero, QuickBooks) to issue and track invoices promptly.
- Early payment incentives: Offer small discounts (for example, 2% for payments within 10 days) to encourage faster settlement.
- Chasing payments: Develop a consistent collections process, with polite but firm follow-ups starting a few days after the due date.
- Credit checks: Conduct credit assessments before offering terms to new customers.
In some cases, businesses may also consider invoice financing or factoring, selling receivables to a third party at a discount to obtain immediate cash.
Extend accounts payable
While it is essential to maintain good supplier relationships, tactically extending payment terms can boost cash retention.
Negotiate longer payment periods with suppliers, especially if your company has a good credit history or increasing order volumes.
Take full advantage of payment terms. If you have 60 days to pay, avoid settling in 30 unless discounts apply.
Use procurement cards (P-Cards) or business credit cards to delay cash outflows by taking advantage of billing cycles.
This approach should be used judiciously; maintaining a reputation for timely payments is crucial for supplier trust and bargaining power.
Control inventory and reduce holding costs
Inventory ties up working capital and incurs storage and insurance costs. To optimise inventory:
- Implement just-in-time (JIT) inventory systems where feasible.
- Use inventory management software to track turnover rates and automate reordering based on demand patterns.
- Identify and offload obsolete stock via promotions or bundling strategies.
- Coordinate procurement with sales forecasting to avoid overstocking.
By improving inventory turnover ratios, companies convert stock into revenue more quickly, freeing up cash for reinvestment.
Lease versus buy: smarter capital expenditure
When expanding operations, many companies face decisions around acquiring equipment, vehicles, or real estate. While outright purchases may offer long-term savings, leasing preserves capital and maintains cash flow flexibility.
Operational leasing can avoid large upfront costs while keeping assets off the balance sheet.
Hire purchase agreements spread costs over time, aligning payments with revenue generation from the asset.
Cloud-based software subscriptions (SaaS) are often preferable to one-off software purchases for cash flow reasons.
Always evaluate the impact of major purchases on liquidity before committing.
Introduce rolling cash flow forecasting
Unlike static annual budgets, rolling forecasts update monthly or quarterly based on real-time performance and changing market dynamics.
A rolling 13-week cash flow forecast is particularly useful for growing firms because it:
Enables early identification of future cash shortfalls.
Facilitates dynamic decision-making around hiring, marketing spend, and capital investment.
Allows leaders to test different ‘what if’ scenarios (for example, delays in funding or unexpected costs).
Modern cash flow planning tools (such as the likes of Float, Futrli, or Pulse) integrate with accounting platforms and provide visual dashboards for easy monitoring.
Optimise pricing and profit margins
Growth often involves pricing pressures—whether due to competitive forces or the desire to capture market share. However, underpricing can severely constrain cash flow.
Conduct margin analysis regularly to ensure all products and services are priced to cover costs and generate surplus.
Implement value-based pricing rather than cost-plus, especially in service or SaaS sectors.
Review product mix profitability to prioritise high-margin offerings.
Regularly reassessing your pricing strategy can help unlock hidden cash flow potential.
Manage growth pace with financial discipline
Growing too fast can drain cash resources faster than they replenish. This issue is particularly acute in sectors with upfront investment costs, delayed revenue recognition, or customer acquisition expenses.
Scale responsibly by linking growth initiatives to cash-generating capacity.
Defer non-critical expansion during periods of tight liquidity.
Tie expenditure to clear ROI projections and monitor progress against targets.
It is often better to grow at a slightly slower pace with positive cash flow than to outpace liquidity and risk collapse.
Access to flexible financing
Even well-optimised companies may experience temporary cash flow gaps. Establishing access to flexible, low-cost financing solutions can help bridge these.
The options include:
- Business overdrafts or revolving credit facilities: Allow short-term borrowing without committing to long-term debt.
- Invoice financing or factoring: Access a percentage of receivables immediately.
- Merchant cash advances: Useful for businesses with high card transaction volumes (though often expensive).
- Equity injections: For longer-term expansion, equity financing from investors or venture capital can be an option, although it dilutes ownership.
The key is to plan financing in advance of need, not in reaction to a crisis, so that terms are more favourable.
Improve cash flow through tax and regulatory strategy
Tax strategy plays a critical role in managing outflows and maximising working capital.
Defer VAT payments where possible via quarterly submissions or agreed payment plans.
Claim R&D tax credits or innovation grants that may provide immediate or retrospective cash injections.
Maximise allowable deductions for business expenses.
Review payroll structures, such as salary sacrifice schemes, which may reduce employer tax liabilities.
It is advisable to work closely with accountants or tax specialists to ensure compliance and identify all available opportunities.
Monitor and benchmark cash conversion cycle (CCC)
The Cash Conversion Cycle is a metric that tracks how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It is calculated as:
CCC = DIO (Days Inventory Outstanding) + DSO (Days Sales Outstanding) – DPO (Days Payable Outstanding)
A shorter CCC means the business gets cash in faster. Improving this cycle, even incrementally, can significantly impact working capital.
Use industry benchmarks to compare performance and set improvement targets.
Build a culture of cash awareness
Ultimately, sustainable cash flow optimisation is not just a finance department task, it requires organisation-wide awareness and alignment.
This can be encouraged by:
- Embedding cash flow targets into departmental KPIs
- Training department heads on budgeting, forecasting, and cost control
- Regular cash flow reporting in leadership meetings
- Incentivising cost-saving behaviour where appropriate
When teams understand how their actions impact cash flow, they make more considered spending and investment decisions.
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