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Working capital is the lifeblood of every small business. By understanding how to keep capital flowing, you can take advantage of growth opportunities—and be better prepared for hard times. Conversely, survival becomes challenging if your working capital slows to a trickle.

“Business owners tend to see cash flow as funds in the bank, but there’s so much more to it,” says Stephen Ball, Senior Vice President and Head of Business Banking at Byline Bank. “A knowledgeable business owner will be able to project upcoming highs and lows of cash requirements—knowing you have sufficient capital to not only get through these times but take advantage of profitable situations is key.”

For these reasons, capital management is usually top of mind for small businesses. In fact, 77% of small business owners reported concern about their access to capital in 2023. Fortunately, there are multiple ways that business owners can improve their capital management and help ensure they have access to capital when they need it most.

Here are five strategies for improving working capital and cash flow for your small business:

1. Streamline your accounts receivable.

Invoice IconAs a small business, collecting your invoices and getting paid on time is essential. That money will fuel your operations and help you grow. However, one-third of all small businesses report having at least $20,000 in outstanding receivables. “When customers take their time paying, you’ve become their bank,” Ball says. “Taking longer to pay than the payment terms is no different than borrowing money; unfortunately, it’s part of doing business.”

To combat this, encourage your customers to pay their invoices as early as possible—for example, you might offer a discount for early payments. Also, explore Treasury Management solutions like mobile deposits, lockbox services and ACH collections to accelerate your access to receivables when they do come in.

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2. Optimize your accounts payable.

Check WritingThis strategy is similar to your accounts receivables approach but in reverse. “It’s only fair to optimize your payment terms,” Ball says. “If you have access to working capital and are offered terms, you will potentially find that paying interest on a line of credit or using cash is worth it to get a discount.” However, Ball adds, “If you’re short on cash or don’t get terms, there is no need to accelerate your payments.”

For instance, if you have 30 days to pay an invoice, use the full period so that you have access to your cash for as long as possible. That said, be sure to pay on time to avoid late fees and damaging relationships with your suppliers and other vendors. Also, prioritize your expenses. Making payroll, for example, is more important than paying a bill 10 days early.

3. Consider short-term financing.

Credit card iconRevolving lines of credit can provide access to working capital during tight times or periods of growth. “Generally, they only cost a few hundred dollars a year to have in place,” Ball says. “You don’t pay interest unless you borrow.” He compares a line of credit to business insurance—it’s insurance for your cash flow. Plus, that extra capital could “help you grow, survive busy seasons, have a credit reference for new suppliers, and overall allow you to be more patient with customers,” he adds.

4. Leverage technology to automate processes.

Technology iconUse technology to make your business more efficient, save employee time and uncover cost savings that keep more cash in your coffers. For example, by automating AR/AP processes, you can ensure that you follow up on late invoices immediately or implement autopay for recurring bills. Many companies also tap into inventory management solutions to track what’s available and avoid over-ordering from suppliers. This makes it possible to do more just-in-time ordering, which leaves cash free for other purposes, instead of tying it up in inventory that may not sell.

5. Talk with your banker about your cash flow strategy and options.

talking icon“Until you have the conversation, you won’t know what your bank does,” Ball says. For instance, one bank may be focused on real estate loans and less experienced with invoice financing. Some banks are familiar with small businesses, while others are focused on larger corporations. Find out which products your bank offers and whether they can serve your company as it grows. In addition, ask about the process for obtaining lines of credit, loans and other products or services.

“You want to make sure you’re building history at a bank that strives to help businesses of your size and a banker whose expertise aligns with your needs,” Ball says. “Having a discussion with your banker should enlighten you on whether they’re an expert, a valued advisor and planner for your business, or an order-taker with little authority or autonomy.”

By tightening up your payment terms, optimizing your payables, establishing lines of credit, automating processes and connecting with your banker, you’re creating working capital options that will enable your company to weather hard times and capitalize on economic highs.

“Get ready well before you need the funds, and you’ll rest easy at night,” Ball says.

If you want to learn more about improving cash flow and optimizing working capital, connect with a Byline Bank business banker today.