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Finding Money Within Your Business When Cash Is Tight

Updated: Feb 12, 2021

There may be cash hiding in plain sight - let's find it.

Most small businesses experience cash flow problems from time to time, and this year has been no exception. Many of my clients have gotten some form of cash relief in the form of EIDL or PPP loans, but what happens when that money (quickly) runs out?

Many business owners immediately think of loans or more investor funding when they’re short of money. But there are other resources you can tap before you sign your financial freedom away with a personal guarantee on a small business loan. The money you need might already be there, locked up in inventory, assets or your customers' bank account.

You can often free up funds from within your business by re-examining your systems, and this money could help get you through your short-term cash crunch.

“There are other resources you can tap before you sign your financial freedom away with a personal guarantee on a small business loan.”

Good Management

Even if the funds you free up from within your business are not sufficient, there is another payoff: the effort you make in searching for them helps to ensure that you are running your business as efficiently as possible.

To free up funds from within your business, look closely at:

· Assets

· Customers

· Suppliers


Your assets include receivables, inventory, pre-paid expenses, vehicles, equipment, fixtures and property. Each of these is a possible source of funds.

“Your business should not serve as an interest-free bank.”


Are you letting some customers get away with the free use of your money for months? This is a common occurrence in small businesses where the owner is so busy getting the business off the ground, products out the door, or services completed, that they don’t pay enough attention to basic business procedures. Many customers will take advantage of this ‘free money’. But your business should not serve as an interest-free bank.

Here’s how you fix the problem:

Get invoices out promptly

Whatever else you do, become efficient at getting invoices out early. This is your future cash flow—the lifeblood of your business! You want to receive it as soon as possible. Start this new system now.

Send the invoice with the goods or right when the service is completed

Date the invoice from no later than the day it is sent rather than following the standard ‘last day of the month’ date for invoices. The earlier the invoice date, the better your chances of getting paid earlier.

Change the terms

This could be for some of your customers or for new customers only. For example, can you ask for immediate payment or set reduced payment terms such as 7 days or 14 days from date of invoice?

Follow up promptly when invoices aren’t paid by the due date

This is critical. Be polite but firm. If you haven’t the time to do this yourself, then appoint (or hire) someone to do it for you. Some invoicing software (including Quickbooks) now gives you the option of charging interest when payments are late. As long as you add that to your contract up-front, charging a low interest amount to late payments is a nudge to get your customers to pay on time and possibly bring in a bit of extra cash.

Monitor the days it takes for your customers to pay

Set an improvement target each quarter. For example, can you find out the benchmark standard for your industry? IF the average in your industry is 30 days, but you are taking an average of 45 days to collect payments, then there’s clearly room for improvement. If your customers or clients have been taking advantage of you because of your previous laxity in invoicing, then you may need to re-educate them. Do this politely so you don’t offend customers:

Consider offering a discount for prompt payment

Discounts are not a good option for low-margin businesses, but can be an option for high-margin operations. You have to work out whether the use of money gained earlier is worth the discount you’re offering. NEVER give the discount if the person has missed the due date for the discount offer. (Yes, some will try this.)



Do you have excessive capital tied up in inventory? This can occur in two ways:

· carrying high levels of items that you could obtain from suppliers at short notice

· having too many slow-moving items (and too few fast-moving items)

A quick sale?

Review your inventory levels regularly, your stock turnover rates and your purchasing policies. Can you free up money by reducing inventory on hand? What about moving out of the slower-moving lines or having a quick sale of items that are just sitting and gathering dust? It might be worth it to reduce some items quite heavily to get some money in quickly.

Can you approach suppliers to take back any excessive stock you may have ordered? They might help you out of a temporary tight corner as a goodwill gesture if you explain you have a temporary cash flow crisis, but that you do wish to build a long-term relationship with them.

If you need additional funds to purchase more inventory, make sure that you’re replacing slow-moving stock with the faster selling lines.

Pre-paid expenses

This is another area you could look at. These pre-paid expenses often relate to services. For example, you might pay your insurance bill for the year all at once, but you could arrange to pay smaller monthly amounts. There might be an additional cost for doing this, but you must weigh the extra cost against the advantages of 12 small payments which your cash flow can comfortably handle versus one large annual payment. Try a similar approach with your accountant. Instead of facing a substantial bill once a year, ask if you can pay a set amount monthly.


Assets can drain significant amounts of cash out of a business. Do you really put all your assets to full use? You might be able to:

· Sell off little-used assets and hire suitable replacements when you require them.

· Lease or rent assets and equipment that depreciates rapidly such as computers or vehicles


Don’t forget your customers can be a source of business funds. Apart from debt collection improvements already discussed, try these tactics:

Ask some of your customers that pay on account with, say, 30 day terms if they would be willing to use their bank credit cards for purchases from you, instead of using the account terms they have with you. For example, if they purchase say $2,500 worth of goods or services from you, they would pay for this by means of a business credit card. They still get 30 to 55 days credit before having to pay the credit card company, but you get your cash as soon as the credit card company sends the funds to your account. You have to pay the credit card processing fees (3-5%), but otherwise it’s almost as good as a cash transaction.

If you’re starting a new business, consider establishing it on a cash only basis to keep the funds inside your business rather than locked up in Accounts Receivable.

Ask for progress payments

If you supply goods over a period of time, or if you’re a service business, ask if you can invoice for progress payments. This is a common method of ensuring you get some cash flow during a project instead of waiting until the end of a project or delivery period to invoice—and then still waiting at least another 30 days for payment.

There’s another benefit here too. If the customer turns out to be problematic, you’ll discover this quite early on instead of at the end and you can cut your losses before they mount up and perhaps drag your business down.


Finally, consider your suppliers as a possible source of funds. Ask for extended payment terms to give you the opportunity to sell the goods first before you have to pay. If the supplier won’t budge, try this tactic: split the order in two and offer to pay normal credit terms (30 days) on the one half of the order and 90 days on the other half. Your suppliers will be more likely to agree to this kind of arrangement if you’ve paid them promptly in the past. After all, they have a vested interest in helping you succeed.

Take advantage of discounts

Pay accounts that give discounts on time. This is an easy one. If any suppliers offer a discount for early payment, then take it (and there is no harm in asking for a discount).

These are just suggestions and may not be suitable for your business or the relationships you have with customers and suppliers. Please reach out if you're interested in finding ways to create more cash with your specific business.

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