How to Keep Your Small Business Afloat When Cash Runs Low

You could face any number of challenges as you nurture your small business, and struggling to come up with the perfectly punny name doesn’t even make the top 10. One of the most notorious problems for small businesses involves something far more serious — failure to manage cash flow.

Smaller businesses, especially young businesses that haven’t had time to build cash reserves, can be particularly vulnerable. Luckily, you have several tools and strategies at your disposal to help your small business navigate these choppy waters.

Consider the following advice for improving your cash flow and keeping the momentum going — then you can focus on finding a punny name.

Provide structure for your clients (and you)

There’s nothing wrong with treating your small business as a labor of love. Just remember that love sometimes needs a little structure.

Consider setting up a few simple policies and procedures. Some will have an external focus (getting customers to pay on time) while others will be internal (keeping track of your incoming and outgoing capital). In the end, they all share the same goal: improving cash flow.

Create a payment structure

Taking a passive approach to billing can leave a small business in dire straits when clients are habitually late with payments. To help address or even prevent these problems, consider making a few additions to your standard contract language, such as:

Specifying payment deadlines. Put dates in writing to encourage accountability and make sure you and your clients are on the same page.
Establishing late payment fees. Consult with a local business attorney to find out the percentages allowed in your state.
Offering early payment discounts. Sometimes the carrot works better than the stick.

If a client pushes back on the requirements, present them as incentives for paying on time as opposed to disincentives for paying late. Clearly communicating expectations beforehand, and remaining respectful if conflict arises, can help you maintain those all-important professional relationships.

Create a cash flow infrastructure

Don’t assume that delinquent payments from clients are the sole cause of cash flow problems. You can take steps within your own organization, including:

Running a cash flow analysis. Statements measuring the inflow and outflow of money into your business can help you identify problems and plan for the future.
Using a cash flow “dashboard.” You’ll find a plethora of software, online tools and apps, many of them reasonably priced and designed specifically for small businesses. The right dashboard can make it easier to electronically track your cash flow.
Setting up direct deposit payments. Direct deposit means no waiting for checks to arrive in the mail and no waiting in line to deposit them at the bank. Some web-savvy clients may even prefer this option to paper checks.

Sometimes a cash flow issue may be arising from within, not without. By creating and maintaining a solid business infrastructure, you can identify internal problems and streamline the system.

Take charge of cash flow problems with a credit card

Making strategic use of a business credit card can help you manage periods of slow cash flow. Business credit cards offer a way to pay expenses that alleviates financial pressure, and they can also provide extra capital through lucrative rewards programs.

Find out how easy solutions to your cash flow problems might be in the cards.

Business expense? Put it on the card…

When clients take their time paying for services rendered, it can be frustrating. When you have bills of your own coming due, delays can also be debilitating. The good news is, a small business credit card could provide an opportunity to make time an ally instead of an enemy.

Rather than writing checks from your commercial account to pay for everyday office expenses when you’re short of capital, consider putting them on your business card. It can take as little as two days for a check to clear, but the monthly billing cycle for credit cards works to your advantage here. In fact, some credit card issuers have business-friendly policies that allow deferred payments.

… but be careful when you charge now and pay later

Making credit card purchases during periods of slow cash flow can provide you with some financial breathing room. At the same time, it’s important to use this strategy sensibly.

Always pay your credit card bill on time if possible. Making late payments and otherwise overextending a line of credit can hurt your business’s credit rating.
Although interest on a business credit card is tax-deductible along with late charges and other types of fees, you won’t be able to write it off until you actually file taxes for that year.
Avoid racking up excessive charges at the very end of a billing period. Otherwise, you may defeat the purpose of the “charge now and pay later” strategy.

Make it a point to use your rewards

Rewards points aren’t just for family vacations. Many business credit cards have specialized rewards programs that, if used correctly, can help you improve your cash flow.

Like personal credit cards, business credit cards use a points-for-purchases system. Typically, you’ll earn 1 point for every dollar spent on general purchases, plus bonus points for select business-related purchases. Popular bonus categories include:

Airfare and hotels
Office supplies
Advertising
Shipping
Internet service
Wireless and landline phone
Utilities
Computers, software, cloud computing

Different uses for different rewards

Some cards focus on cash back or travel rewards, while others offer a combination of the two. Here are some tips on how to use them.

Cash back

With cash back rewards, you can redeem points for a quick infusion of capital by:

Making an electronic deposit into your business checking account.
Redeeming for a statement credit on your current monthly balance.
Redeeming for a gift card to use for everyday expenses. (Think of it as plastic petty cash.)

Travel rewards

Redeeming points for travel rewards can deliver discounts for purchases like airfare, hotels and ground transportation — and with enough points, maybe even free flights or hotel stays. Some cards may also let you transfer points to airline or hotel loyalty programs. Whichever way you decide to use your travel rewards, the important thing is that money saved on travel expenses means less money coming out of your operating budget.

Pro tip

Some issuers let you transfer points from a personal card to a business card. These transfers can help you earn points and rewards even more quickly.

Business or personal card?

You could use your personal credit card for your small business, but a dedicated business card has some distinct advantages. Besides the potential to help your cash flow, the reasons to choose a business credit card include:

They tend to have higher credit limits. A personal credit card probably won’t offer the amount of credit needed to operate a business.
They make bookkeeping easier. To document business-related interest charges and fees on a personal card, you would have to comb through your monthly statements and separate business expenses from personal expenses.
Signup bonuses are generally higher. When you make the required amount of purchases, you’ll earn bonus points for rewards that may include cash back, statement credits or free hotel stays. Signup bonuses are typically larger for business credit cards than for cards intended for personal use.
Some issuers allow you to transfer points from a personal card to a business card. These transfers can help you maximize points on your business card and earn even more.
You can get them for your staff. Some issuers offer multiple cards free of charge on the same account and allow the employee cards to earn rewards points too.

Facing the challenge of slow cash flow

Almost any business has to deal with uncertain times when the money coming in doesn’t keep pace with the money going out. The effects of ebb and flow can be magnified for owners of small businesses, but don’t be discouraged. You were resourceful enough to start a small business in the first place, so look at the problem of slow cash flow as another challenge to overcome.

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