9 Ways to Improve Cashflow in Your Small Business
Profitable businesses go under every year. Not because they weren't making money, but because the money arrived too late.
Cashflow is the gap between when you pay out and when you get paid in. Manage that gap well and you can survive a bad quarter. Manage it badly and a single late payment can put you in trouble.
Here's what actually moves the needle for UK small businesses.
1. Build a 13-week rolling forecast
Most owners look at their bank balance and hope. A 13-week forecast tells you what your balance will be, week by week, based on what's already committed.
You need three things: cash in (by week, based on realistic payment dates, not invoice dates), cash out (rent, payroll, VAT, PAYE, suppliers, loan repayments), and your opening balance.Update it every Monday. Thirteen weeks is far enough ahead to fix problems and close enough to be accurate.
The point isn't the spreadsheet. It's spotting the week in March where you're £8,000 short — in January, while you can still do something about it.
2. Shorten your payment terms
If you're invoicing on 30 days out of habit, ask why. Plenty of businesses invoice on 14 days, or 7, without losing a single customer.
Then make paying easy:
Invoice the same day the work finishes, not at month end
Put bank details and a payment link on the invoice itself
Set up direct debit for anything recurring
Take a deposit up front on larger jobs, with staged payments after
3. Chase properly, and early
Late payment is the biggest cash flow killer for UK SMEs, and most owners are too polite about it.Send a reminder the day an invoice becomes overdue. Not a week later. A short, friendly, automated email works better than an awkward phone call you keep putting off.
And know your legal position: under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge statutory interest at 8% above the Bank of England base rate on overdue commercial invoices, plus fixed compensation of £40, £70 or £100 depending on the debt size.
You don't have to charge it. But saying "our terms allow us to apply statutory interest" moves you up the payment queue.
4. Negotiate your supplier terms
Cash flow works both ways. If you're paying suppliers in 14 days and getting paid in 45, you're funding your customers' businesses.
Ask your regular suppliers for 30-day terms. If you've paid reliably for two years, you have leverage. Many will say yes simply because nobody asks.
Pay early only when there's a real discount that beats the cost of the cash.
5. Use the VAT schemes available to you
This is where a lot of small businesses leave money sitting on the table.
Cash Accounting Scheme — you pay VAT when your customer pays you, not when you raise the invoice. If you have slow payers, this is significant. Available if your taxable turnover is £1.35m or less.
Annual Accounting Scheme — one return a year with monthly or quarterly instalments. Smooths the lumps out of your cash flow and makes budgeting easier.
Flat Rate Scheme — simplified VAT for businesses with turnover of £150,000 or less. Worth modelling before you commit, as it doesn't suit everyone.
6. Ring-fence your tax money
Open a second bank account. Every time money comes in, move the VAT and a provisional amount for corporation tax straight across. Treat it as untouchable.
The alternative is discovering in month nine that you've spent HMRC's money on stock, which is a bad conversation to have with yourself.If you're already behind, contact HMRC about a Time to Pay arrangement before the deadline rather than after. They are far more flexible with businesses that come to them first.
7. Get on top of stock and waste
If you hold stock, it's cash sitting on a shelf.
For hospitality especially:
Set par levels and order to them, rather than ordering by instinct
Count weekly on your highest-value lines, not just at year end
Track your gross profit percentage by category — food, wet, coffee — so you can see where margin is leaking
Review supplier pricing every six months; the price you agreed two years ago is rarely still the best one
Waste, over-portioning and unrecorded staff drinks quietly cost more than most operators realise.
8. Plan around your seasons
If you trade somewhere like the Dorset coast, you already know the shape of your year: a brutal winter, a frantic summer.The mistake is treating the good months as normal. Build the forecast across the whole year, work out what the quiet months cost you, and set aside a share of peak-season cash to cover it.
It's also worth asking what could soften the trough — a winter events programme, midweek offers, corporate or Christmas bookings, or something you can sell that doesn't depend on footfall.
9. Match your costs to your income
Two practical checks:
Staffing — schedule against forecast covers or bookings, not against last week's rota. Small, consistent overstaffing is one of the most expensive habits in hospitality.
Subscriptions — pull your last three months of bank statements and highlight every recurring payment. Most businesses find something they stopped using a year ago. It's not transformative, but it's free.
Where to start
If you do one thing this week, build the 13-week forecast. Everything else on this list is easier to prioritise once you can see where the pressure actually is.VVMAUK provides management accounting and
finance support to hospitality businesses and SMEs across Dorset and beyond. If your cash flow feels tighter than your profit and loss suggests it should, get in touch for a conversation.
This article is general information, not advice for your specific circumstances. Thresholds and rates change — check the current position with HMRC or speak to your accountant before acting.
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