Small businesses can improve cash flow in 2023 using these approaches
Created on Feb 21, 2023
Updated on Feb 21, 2023

Ongoing economic problems like inflation, labor shortages, and the rising price of goods and services are making it harder and harder for small businesses to feel secure about their longevity. A PYMNTS’ study conducted at the end of 2022 showed a 10% drop in the number of companies expecting revenue increases compared to the previous period in 2021, with 12% believing they may not last to see 2024.

However, businesses who remain financially agile and open to new technology can not only maintain cash flow, but improve it. Companies can implement a range of practical and technological approaches right now to keep their working capital in the green.

Find ways to negotiate with customers and suppliers

While some contracts are fixed in stone, customers and suppliers are still human beings who may be flexible and open to discussion with regard to the timing on payments. Here are a few areas you can explore with them:

1) Offer discounts for early payment

Have you considered offering incentives for your clients to pay their invoices earlier? An early payment discount (EPD) can range from 1 to 2%, but a small loss in revenue might be worth getting fast access to cash that can be put towards urgent business needs, such as payroll or rent. Another benefit is that receiving payments early contributes to lower days sales outstanding (DSO) metrics, which can enhance your company’s overall financial health rating.

2) Negotiating with suppliers on payment due dates

The payment terms in most industries are generally net 30, which means that payments that are as little as a day late can have a major impact on expenses on a fixed schedule like rent or payroll. However, some supply chain partners may be open to accepting net 15 or net 20 payment terms.

Digitize your AP / AR processes

There is an undisputed correlation between modernizing AP / AR processes and overall business growth. A recent PYMNTS report found that over 50% of US CFOs surveyed say that digitizing their AP / AR operations has allowed for an increase in payment types such as ACH payments, credit cards, wires, and real-time payments (RTP), among others.

1) Centralize your payment tools

Efficiency and transparency in AP / AR processes are essential to cash flow management, which is why relying on manual operations can result in wasted resources. All-in-one payment platforms offer a remedy to this scenario by bringing all of these processes – such as expenses, payroll, and revenue management – under one digital dashboard. Over 40% of main street businesses surveyed by PYMNTS said that implementing an all-in-one payment platform simplified their receivables tracking, and 32% said the technology had led to improvements in working capital.

BlueX Pay, for example, offers a payment platform that amplifies cash flow for buyers and sellers. Businesses can set up a digital wallet to make and receive payments, as well as access Pay-it-Later services. All of the transactions can be viewed on their dashboard, which enables easy reconciliation.

2) Use digital payments, and encourage your supply chain to do the same

Using legacy accounting processes such as mailing physical checks may avoid the costs of digital payments, but you should consider the time it takes to process the checks, which can take anywhere from days to weeks. This time loss could translate into a loss in capital which can easily exceed a digital processing fee. This does not mean that you need to stop using checks for the vendors who prefer this approach, but it would be worthwhile to encourage other businesses in your supply chain to switch to digital payments, as this could bring benefits to all.

And with the FedNow real-time payment network set to launch in the US later this year, there has never been a more advantageous time for businesses to make the move to digital payments.

Consider alternative methods of financing

An uncertain economy and limited access to bank loans are leading small businesses to search for more creative financing methods, such as inventory financing, invoice factoring, or B2B pay-it-later solutions. Fintech companies are watching the trends and rolling out tools that connect businesses to these finance options, which can provide a lower barrier to entry and more flexible payment terms.

1) Inventory financing

With inventory financing, businesses can put up the inventory they wish to buy as collateral for the purchase itself, such as in cases where they need additional stock for a busy season. The borrower doesn't need to pay back the lender until after they sell off all the inventory, and if the business defaults on the loan, the lender has the option to then try and sell the remaining stock themselves.

The benefits of inventory financing include: no need to stake personal assets such as a house or car; funding is usually fast; and there’s no credit check required. However, this approach usually requires more due diligence on the part of lenders to access the inventory’s liquidation value, which can result in longer wait times for funding. And some lenders may demand a minimum amount of financing that might be too high for smaller businesses to meet. You can consider BlueX to assist you with inventory financing, as we don't require an assessment on the inventory's liquidation value, nor do we require a minimum amount to get the financing.

2) Invoice Factoring

Invoice factoring, also known as AR factoring, is a finance option in which the business sells its invoices to a third party at a reduced price, which allows the business fast access to working capital without needing to take out a loan. For example, a 90% advance on a $10,000 invoice would provide the business with $9,000 in cash right now, with the difference going to the factoring company upon collection of the invoice from the businesses’ customer.

3) BlueX Pay-it-Later

BlueX offers a third alternative to small businesses that need to enhance their cash flow in the form of our B2B Pay-it-Later solution. BlueX Pay-it-Later offers fast access to up to $1 million for cargo and all your logistics service needs. Businesses can get approved in less than 48 hours, and have up to 60 days to pay back their invoices. There is no application or set up fees, and we pay your vendors on time so you can pay later and focus on the goals that drive business growth.

Reach out to the BlueX team on how to make better payments and amplify your cash flow.