How to manage cash flow

If you’ve experienced late invoice payments (like 90% of UK businesses), have faced an unexpected bill or needed to cover the material costs of a large order upfront, you might have worried about having enough money in your bank account.

Managing your cash flow helps you stay in control of your finances and makes your business more resilient to unexpected challenges or slow periods.

In this article, we’ll explain what cash flow is, why it’s important to stay on top of it, and how to manage it effectively.

Key points:

• Managing cash flow ensures your business always has the money it needs to run smoothly

• Cash flow management methods include minimising expenses, financing big purchases, and growing at a sustainable pace

• Funding Options by Tide can help you secure the right business funding quickly and easily, so you can manage your cash flow more effectively

What is cash flow?

Cash flow is the money moving in and out of your business over a given period of time. It includes what you earn from sales or payments (inflows), and what you spend on bills, supplies, and other costs (outflows).

Monitoring cash flow tells you how much money’s moving in and out of your business in real-time. You can calculate it using this formula:

Net cash flow = Cash inflows - Cash outflows

For example, let’s say your business received £10,000 and spent £6,000 last month. Your net cash flow would be £4,000.

In this example, your business would be cash flow positive. But if you received less cash than you spent, you’d be cash flow negative.

• Cash flow positive: Your cash inflows are greater than your cash outflows

• Cash flow negative: Your cash outflows are greater than your cash inflows

Cash flow isn’t the same as income (total revenue), expenses (the costs of running your business), or profit (what’s left after subtracting expenses from income).

Why is managing cash flow important?

Even a profitable business can get into trouble if the cash isn’t there when you need it. You might have invoices waiting to be paid, a bill about to arrive in your inbox, or a chance to grab a great deal – but if you don’t have money in the bank, you might be left needing to borrow money or miss payments.

Managing your cash flow well means you’ll always be prepared. You’ll be able to cover your costs without stress, take advantage of opportunities when they arise, and avoid the panic of last-minute borrowing. Because when you’ve got that control, you’re able to build your business on your terms.

What is cash flow management?

Cash flow management is simply about keeping an eye on the money moving in and out of your business, and making sure you’ve always got enough to cover your costs.

This can include:

• Tracking when payments from customers will land in your account

• Planning for upcoming bills

• Spotting any gaps where you might not have the cash needed to hand

• Setting aside extra cash during busy months to cover quieter periods

• Negotiating better payment terms with suppliers to ease pressure on your finances

Every business is different, so the best solution will depend on your specific situation. But the goal is always the same: to keep your cash flow steady and stress-free.

Signs you need to improve your cash flow

Cash flow problems don’t always announce themselves with a dramatic crash. They often start as small, persistent warning signs. This is why it’s important to spot them early – before they turn into bigger issues.

Consider improving your cash flow if:

• You’re regularly paying bills late: Not because you forgot, but because the money isn’t there when you need it. This can damage relationships with suppliers and even affect your credit score.

• You’re relying on overdrafts or credit cards: Using short-term borrowing to plug gaps is fine now and then, but if it’s becoming a habit, this could indicate cash flow issues.

• Your customers are paying late, but your own bills are due: Chasing invoices while juggling payments is a classic cash flow squeeze, and it can leave you stuck in a stressful cycle.

• You’re struggling to pay yourself or your team on time: If wages are a monthly worry, it’s a sign your cash flow isn’t keeping up with your commitments.

• You’re turning down work or opportunities: Whether it’s a big order you can’t fulfil or a chance to expand, poor cash flow can force you to delay your growth plans.

• You’re dipping into personal savings: Using your own money to keep the business afloat is unsustainable, and it blurs the line between your finances and your company’s which can complicate accounting.

• Suppliers are chasing you for payment: If you’re getting more reminders than usual, or even threats of late fees, it could be time to look at your cash flow.

• You’re stretched thin between payroll and tax bills: If HMRC deadlines or staff wages consistently feel like a scramble to cover, your cash flow might need attention.

How to improve your cash flow

Improving your cash flow requires being proactive. With the right approach, you’ll have a better chance of keeping money flowing smoothly and avoiding unnecessary stress.

To improve your cash flow:

• Track your money closely: The sooner you spot a potential gap in your cash flow, the easier it is to fix. If you’re not already using accounting software or cash flow tools, it’s worth considering as they could save you hours of time.

• Speed up customer payments: Send invoices promptly, set clear payment terms, and don’t be afraid to chase overdue bills. The longer an invoice sits unpaid, the tighter your cash flow gets.

• Time your outgoings carefully: If you’ve got bills or supplier payments due, see if you can align them with when you expect money to land in your account. Even delaying a payment by a few days (without penalty) could help bridge a short-term gap.

• Reduce unnecessary costs: Review your expenses regularly. Are there subscriptions you don’t use? Suppliers you could negotiate with? Small savings add up, and every pound you keep is a pound that helps your cash flow.

• Plan for big purchases or orders: If a large expense or a bulk order is on the horizon, explore your financing options early. That way, you won’t be scrambling to cover costs when the bill arrives.

• Make income more predictable: If your business has ups and downs, perhaps due to seasonality, look for ways to smooth things out. Could you offer retainers, subscriptions, or deposits? A steady income is easier to manage than a variable one.

• Forecast ahead: A cash flow forecast isn’t just for accountants. By mapping out your expected income and expenses, you’ll be more likely to spot potential shortfalls before they hit and will have time to make adjustments.

• Build a financial cushion: Even profitable businesses hit rough patches. So aim to set aside a reserve for slow months or unexpected costs. It doesn’t have to be huge – just enough to give you breathing room.

• Grow at the right pace: Expanding too fast can stretch your cash flow thin. Before taking on big new projects or hires, consider if you can afford it without putting too much pressure on your cash flow.

• Prepare for the worst: Hope for the best, but have a backup plan. Whether it’s a revolving credit facility, an overdraft, or a savings buffer, knowing you’ve got options will help you sleep easier.

• Avoid impulse spending: It can be tempting to upgrade equipment or take on new projects when business is booming. But if that spending leaves you short later, it may not be worth the risk. So aim to commit to what you can realistically afford.

Cash flow management examples

Managing cash flow is different for every business, depending on how money moves in and out. But there is one common thread – planning ahead. Here are three examples to show how it works in practice.

The thriving cafe

A small cafe in Manchester has steady foot traffic, but their cash flow still fluctuates. They know their busiest months are summer and December, so they set aside 10% of their profits during these peaks to cover quieter periods in January and February. They also offer a loyalty discount for customers who pay by card upfront, which speeds up payments and reduces the risk of unpaid tabs. By tracking their daily takings and supplier bills in a simple spreadsheet, they always know if they’ve got enough to restock. And when their coffee machine needed replacing, they’d already saved enough to buy it outright, avoiding having to take out a business loan.

The growing online retailer

An online handmade jewellery store saw sales double after a feature in a lifestyle magazine. But with more orders came higher upfront costs for materials and shipping. Instead of waiting for customer payments to trickle in, they negotiated 60-day payment terms with their supplier, giving them breathing room to fulfil orders before paying their own bills. They also introduced a 10% deposit on custom pieces, which helped cover material costs upfront.

The struggling construction firm

A small building company landed a £50,000 contract but didn’t account for the three-month delay between completing the work and getting paid. With wages, material costs, and subcontractor fees due sooner, they found themselves dipping into personal savings to stay afloat. To fix this, they started asking for 30% upfront deposits on new projects and used invoicing software to send automatic payment reminders. They also switched to a supplier offering 30-day credit terms, easing the pressure while they waited for client payments. Now, they’re back on track, and they’ve built a small emergency fund to avoid the same squeeze next time.

Boost your cash flow with Funding Options by Tide

Managing cash flow is an important part of running a successful business, helping you grasp opportunities and weather downturns. But if cash flow gets too squeezed, it can put your business at risk.

Funding Options by Tide can help you find the right solution to boost your cash flow quickly. Whether you need a loan, invoice finance, or another type of funding, we compare options from over 80 lenders so you get the most suitable product.

We’ve already helped over 19,000 SMEs secure more than £1.1 billion in funding. And we’re ready to help you too.

Compare business loans and other cash flow finance options available through Funding Options by Tide.

FAQs

What’s the difference between cash flow and working capital?

Cash flow is the actual movement of money in and out of your business over time, showing whether you’ve got enough to cover your day-to-day costs. Working capital, on the other hand, is the money you’ve got available right now to run your business – calculated as your current assets (like cash and stock) minus your current liabilities (like bills and short-term debts).

Why is forecasting cash flow important?

Forecasting cash flow helps you spot potential shortfalls before they happen, so you’re never caught off guard by a quiet month or an unexpected bill. And when you can see surpluses coming, you’ll know the best time to invest, hire, or grow.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.