Even a profitable business can run into trouble if money comes in too slowly or too many payments leave the account at once.
This is a common challenge for UK businesses. Government research found that 27% of SME employers considered late payment a problem in 2024, while separate research estimated that late payments cost the UK economy almost £11 billion a year.
Pay invoices in a timely way
Paying invoices on time helps you maintain good relationships with suppliers and avoid unnecessary late-payment charges, while also giving you a clearer picture of how much cash you have available.
It is useful to schedule regular payment runs so invoices do not build up unnoticed. However, paying early is not always necessary if you have agreed payment terms.
Check your cash position before making large payments and keep enough money available for essential costs such as wages, rent and tax.
Keep a close eye on what is coming in
Businesses can manage cash flow more effectively by tracking when customers are expected to pay rather than simply looking at your bank balance.
Create a simple cash flow forecast covering the next three to six months. Include expected sales, customer payments, supplier invoices, salaries, tax (in particular corporation tax), loan repayments and other regular expenses. This can help you spot a potential shortfall before it becomes a problem.
Chase overdue invoices quickly
Sending invoices promptly and following up overdue payments can make a significant difference to your cash position.
Government research found that 36% of businesses said their customers took longer to pay than their usual contractual terms. The research also found that small businesses were more likely than businesses overall to report customers taking longer than agreed to pay.
Set clear payment terms and make sure invoices contain everything customers need to pay you. Automated reminders can also reduce the amount of time you spend chasing outstanding money.
Use credit lines when you need them
A business credit line can provide flexibility when there is a temporary gap between money going out and money coming in.
Rather than borrowing a large amount upfront, a credit facility can allow you to draw down funds when required and repay them as cash becomes available. This can be useful for covering short-term expenses, purchasing stock or managing seasonal fluctuations.
Always check the interest rate, fees and repayment terms before using credit, and make sure borrowing is affordable for your business.
Spread repayments where possible
Spreading the cost of a large purchase can make cash flow easier to manage because you are not paying the entire amount from your bank account at once.
Depending on your circumstances, you may be able to negotiate instalment payments with suppliers or use finance to spread the cost. Some businesses may also use a 0% credit card for eligible purchases, provided they can repay the balance before the promotional period ends.
Remember that 0% offers usually have conditions and expiry dates, so factor the eventual repayment into your cash flow forecast.
Build a cash buffer
Keeping a cash reserve gives your business some protection against unexpected expenses or slower-than-expected sales.
There is no single amount that suits every business, but regularly setting aside a proportion of surplus cash can gradually create a useful buffer. The larger your fixed monthly costs, the more important it may be to have accessible funds available.
Review your costs regularly
Reducing unnecessary spending can improve cash flow without requiring additional sales.
Review subscriptions, software, suppliers, insurance, premises and other regular expenses at least once or twice a year. Look for costs that no longer provide enough value and consider negotiating better terms with key suppliers.
Make cash flow part of your routine
Good cash flow management is not something to review only when money is tight. Make it part of your normal financial routine by checking your bank balance, outstanding invoices, upcoming payments and cash flow forecast regularly.
With better visibility, you can decide when to pay suppliers, when to chase customers and when additional finance may be needed. This gives you greater control over your finances and helps your business prepare for both opportunities and unexpected costs.
