The short answer
When cash flow tightens, you have more options than a personal credit card. Six practical strategies help business owners bridge the gap: take control of your accounts, use business loans or lines of credit carefully, consider invoice financing or hire purchase, and outsource accounts receivable. The right mix protects both your operations and your business's value.
Key takeaways
- Start by controlling your accounts: visibility lets you forecast and fix shortfalls before they hit.
- Use finance deliberately: loans and credit lines help, but interest and personal guarantees carry risk.
- Invoice financing frees trapped cash: turn unpaid invoices into working capital quickly.
- Hire purchase spreads equipment cost: preserve cash while still getting the assets you need.
- Outsourcing receivables saves time and cost: professionals chase invoices so you can run the business.
Are you struggling to manage your working capital, or dipping into other funds to cover business expenses? Are bad debts throwing your invoicing into disarray? Closing the gap between money coming in and money going out is a challenge for start-ups and established businesses alike, and reaching for a personal credit card is rarely the best answer.
Owners who ignore the warning signs and keep covering costs with debt can find themselves unable to fund their growth plans, or to sell the business for a good price when the time comes. Here are six proactive strategies to accelerate the money coming in and slow the money going out.
1. Take control of your accounts
Start by analysing your accounts closely. If unpaid invoices are piling up, there is a lot you can do to tighten internal procedures. Track your outgoings and keep full visibility of your financial data, so you can forecast future income and spot cash flow problems before they arrive, rather than reacting to them.
You can also smooth the process from the other side: instead of only chasing revenue ahead of a squeeze, slow your spending as one approaches, and negotiate longer payment terms with suppliers to give yourself flexibility if your own clients pay late.
2. Business and personal loans
If you need extra help, external finance can bridge a shortfall. Banks are often the first place owners look, given existing relationships, but they can be restrictive, and there are alternatives.
A personal loan can finance company expenses, but it usually carries higher interest and puts your personal credit at risk if things go wrong. An unsecured business loan is another option: a short-term loan, often three to twelve months, that covers equipment, operating costs and bills without collateral, though again at a higher interest rate that can affect profitability, and your valuation, if repayments become difficult. Get proper financial advice before committing to any loan.
3. Lines of credit
Similar to a credit card, a line of credit lets you draw funds to pay business expenses as you need them, up to a set limit, and pay interest only on what you draw. Used within a regular repayment schedule, it is an easy and effective way to manage timing without harming your business's value.
4. Invoice financing
Also known as debtor finance, invoice financing lets you receive most of an invoice's value soon after issuing it, using your accounts receivable as collateral. Providers typically advance up to around 80% of the invoiced amount, with the balance, less a fee, paid once the client settles.
It is a fast, relatively simple way to free up cash when invoices are stacking up and debtors are slow to pay. There is a well-documented link between late payments and business failure, so releasing the cash tied up in unpaid invoices can be the difference between surviving a tight period and going under. As the business grows and sales stabilise, the need for debtor finance usually falls.
5. Hire purchase
Depending on your industry, hire purchase can help. Think of it as renting machinery, equipment or computers: the asset is owned by the supplier until the end of the agreed term, much like buying a phone on a plan. At the end, you can keep, sell, or move to a new finance term. It spreads the cost of essential equipment while preserving your cash.
6. Outsource accounts receivable
Sometimes an outside hand is what gets things moving. A dedicated provider can overhaul your payment system, chase late invoices and keep your financial data current, so cash comes in faster without tying up your own time. Outsourcing receivables often lowers costs too, saving the hours of self-management or the expense of a full-time hire, and improving your cash position in the process.
Where a good adviser fits
Restricted cash flow is one of the biggest brakes on sustainable growth, and it affects a large share of Australian businesses. Every industry has its own cash flow rhythm, so the right mix of these strategies depends on your business. Working with money-management experts ensures you get advice suited to your situation, and protects the value you are building.
Exit Advisory Group helps owners of businesses in the $3M to $100M range build value and prepare for a strong exit, and healthy cash flow is a foundation of both. To understand how it feeds into what your business is worth, read how buyers value a business in Australia, or explore our business valuations service.
Frequently asked questions
What are good cash flow strategies for a business?
Practical strategies include tightening your accounts and forecasting, negotiating longer supplier payment terms, using business loans or a line of credit carefully, invoice financing to unlock unpaid invoices, hire purchase to spread the cost of equipment, and outsourcing accounts receivable so invoices are chased professionally.
How can I improve cash flow without a loan?
Start with what you control: track your outgoings, forecast income to spot shortfalls early, tighten invoicing and collections, and negotiate longer payment terms with suppliers. Invoice financing and outsourcing your receivables can also free up cash without taking on a traditional loan.
What is invoice financing?
Invoice financing, or debtor finance, lets you receive most of an invoice's value soon after issuing it, using your accounts receivable as collateral. You get the balance, less a fee, once the client pays. It is a fast way to smooth working capital, especially for growing businesses waiting on slow-paying debtors.
Does cash flow affect business value?
Yes. Persistent cash flow problems, and the debt taken on to cover them, can lower your valuation and make the business harder to sell. Managing cash flow well protects both day-to-day operations and the long-term value of the business.
Should I use a personal loan for my business?
It is possible, but weigh the risks: personal loans often carry higher interest and put your personal credit and assets on the line if the business struggles. An unsecured business loan or line of credit may suit better. Get proper financial advice before taking on any debt.
