5 steps to boost your cash flow using accounting software

5-minute read

Cash is the air that keeps a business alive, but many entrepreneurs have little idea how much breathing room they have. If their cash flow suddenly slumps, they can be left scrambling to meet payroll or have to find financing on costly terms. It’s a common problem, even for fast-growing, profitable companies.

Closely tracking your cash flow can help you see when your bank account risks running dry and allow you to take action ahead of time. You can stay on top of cash flow with free or low-cost accounting software, or even a basic spreadsheet.

“Accounting software is usually seen as being just for tracking your financial history and paying taxes,” says Alka Sood, a BDC business consultant. “But the main reason you should be using it is to watch your cash flow so you can run your business better.”

Sood shares this five-step approach to boosting your cash flow by using accounting software.

1. Create cash flow projections

Good cash management starts with a cash flow projection. Use your accounting software or a spreadsheet to list all the fixed and variable revenues and costs you anticipate over the coming year. (Not all accounting software offer high-quality cash flow projection tools. Microsoft Excel spreadsheets are a good alternative. Excel offers several free cash flow management spreadsheets in its templates.)

Then, take a look at your projection and notice any coming cash flow dips. Knowing about these in advance gives you a chance to seek additional financing, change the timing of major spending, cut expenses, boost your cash reserves or ask suppliers for breathing room.

“A cash flow projection gives you peace of mind,” Sood says. “You can sleep better at night when you don’t have to worry about surprises and how you’re going to pay the bills.”

Businesses typically track cash flow on a monthly basis. It’s important to record cash inflows and outflows in the month they’ll occur, not the month you make a sale or first get a bill.

Read BDC’s free guide, Taking Control of Your Cash Flow, to learn more about cash flow projections.

2. Speed up cash inflows

Getting money into your business faster can help limit the use of a line of credit and smooth out cash flow dips. You can use the following functions found in many versions of accounting software.

Email invoices directly from your accounting software

If you’re still using regular mail, now’s the time to switch to email. It’s much faster than the post and saves you mailing costs. Even quicker: Get customers to pay bills electronically.

Use a mobile accounting app to process bills on the spot

Not only does money flow into your company more quickly, but you also reduce the risk of billing errors.

Regularly check accounts receivable

This will help you track unpaid accounts and when to start chasing slow payers. You can calculate each client’s days receivable outstanding (how long it takes them to pay) and plug that into your cash flow projections to ensure you have accurate forecasts. You can also watch your company’s overall days receivable outstanding to see if you should alter billing terms to encourage prompter payment. For example, you could charge interest or late fees on overdue accounts.

Optimize inventory levels

Use your accounting software’s inventory management tools to look for ways to optimize inventory levels, reduce cash tied up in stock and cut inventory expenses. The tools can also help make sure you don’t run out of inventory.

3. Slow down cash outflows

Accounting software can help you keep more money in your business by reducing or slowing down cash outflows. For example, you can track your bills to avoid late fees and interest. Or you can avoid paying bills prematurely, before they’re actually due. If suppliers give you 30 days to pay (without offering a discount for early payment) use this free money to your advantage.

4. Automate tasks

Explore functions that let you automate routine tasks. For example, you may be able to automatically invoice regular customers.

You can also automate reminders for bill payments to cut down on late penalties and interest charges. As well, you could set an alert to tell you if you’re going to run out of cash before the next infusion.

5. Watch the numbers

Accounting software gives you metrics to optimize your cash flow management. You should regularly compare actual cash inflows and outflows to your projection and adjust your forecast as needed.

You can also set your software or spreadsheet to display key data, such as cash on hand, your cash conversion cycle, days receivable/payable outstanding, days inventory outstanding and gross profit.

Read more about how to track cash flow metrics.

Your privacy

BDC uses cookies to improve your experience on its website and for advertising purposes, to offer you products or services that are relevant to you. By clicking ῝I understand῎ or by continuing to browse this site, you consent to their use.

To find out more, consult our Policy on confidentiality.