How to improve your cash flow without financing

What is cash flow? 

Cash flow is the difference between income and costs in your business account. You look at this difference every quarter, month, week, or day.

Calculating cash flow 

This is how you calculate your cash flow: deduct the costs from your income in your business account for a period of one day, week, month, or quarter. 

Example: you earn €30,000 in revenue during one quarter. You spend €20,000 on buying goods, expenses, and withdrawals for personal use. In this case, your cash flow is €30,000 - €20,000 = €10,000 and positive. Do you earn €20,000 during one quarter and spend €30,000? Then your cashflow is €10,000 negative. 

Improving your cash flow

You can improve the cash flow of your business in several ways:   

1. Plan and monitor income and expenses

2. Get paid faster with accounts receivable management 

3. Pay smarter with accounts payable management  

4. Optimise stock management  

5. Pay less tax   

6. Use financing

1. Plan and monitor income and expenses

A healthy cash flow starts with good planning and regularly monitoring how much money is coming in and going out. Many business owners focus mainly on profit, but profit is not the same as cash flow.

You can make a profit and still find yourself short of cash. For example, if your customers pay late, you have to make large investments, or you have a lot of unsold stock. That is why it is important to actively monitor your cash flows.

Draw up a liquidity budget

A liquidity budget will help you predict the income and expenditures of your business. That way, you can predict when you can expect a lack of funds. So that you can shift around some of your income and expenditures. For example, by invoicing sooner, spreading payments, or make fewer purchases for a while.

Example: This month, your turnover is more than 10,000 euros. But your clients are not due to pay until after 30 or 45 days. So, the money is not in the bank, but you still have to pay suppliers and the rent. A good liquidity budget can prevent your getting stuck in such a period.

Tip: Use the VNO-NCW and MKB Nederland Toekomstcheck (Future Check, in Dutch). It provides insight into your financial status and shows you what the outlook is for the next 12 months. 

Schedule checks 

If you check your income and expenditures on a daily basis, you will always know when customers will pay. Run a quick cash flow check once a week. That way, you avoid surprises. And keep track of how your cash flow develops on a monthly basis. That allows you to adjust your course in time. Online accounting software offers the convenience of a dashboard and up-to-date access. 

2. Get paid faster with accounts receivable management 

Smart accounts receivable management enables you to ensure that your customers or clients will pay your bills on time:

• Agree a clear payment term (for example, 14 days) in your price quote/proposal and your general terms and conditions. You can also request that your customer or client prepay a portion of the amount owed. 
• Invoice your customer directly after delivery. For long-running projects, use part invoices (also known as percentage invoices). You can also increase the billing frequency from once a month to fortnightly (biweekly) or weekly.
• Make paying easy: offer online payment options such as digital payment requests, iDEAL, or e-billing.
• Give customers who pay quickly a small discount. 

3. Pay smarter with accounts payable management 

Keep track of the invoices you have to pay and make a planning. Pay invoices in time, but not too early. This is called accounts payable management. In your planning, list your financial commitments in order of importance. For example, wages, taxes, rent, and your main suppliers/vendors come first. You can agree with some suppliers/vendors to send you part invoices. This makes it possible to spread your payments, making it easier to pay even larger amounts more easily. 

4. Optimise stock management 

You keep money in stock which is not immediately available for business operations. You can reduce this amount by optimising your stocks and through smart buying.

• Order only what you need, or work with products on consignment. You only pay for these products once you have sold them yourself.
• Negotiate purchase prices with your suppliers and investigate whether joining a buying group would be beneficial.
• A smaller stock saves on warehouse space and insurance costs. Do you have obsolete stock or surplus equipment? Sell these once a year at a lower price for quick cash.

5. Pay less taxes 

Income tax or corporate income tax is a yearly expense. You can use your deductibles when filing your return. If you are expecting a lower profit, you can ask the Netherlands Tax Administration to reduce your provisional tax assessment.  Throughout the year, you can claim back VAT on unpaid invoices (Belastingdienst, in Dutch) and VAT from other EU countries. 

6. Use financing 

If you are facing a temporary cash flow problem, perhaps due to seasonal factors, you can use business financing to bridge the gap. Options include factoring or an overdraft facility on your current account. Even if you need financing for a longer period, for example, as your business grows, there are various financing options available. Use the Financing Finder to find the right financing solution for your business.