Cash flow levers are pathways to improve your cash balance in a few weeks time. You can mark your success merely by checking bank accounts or by measuring the cash flow margin ratio. The ratio compares monthly revenues to operating cash flow, i.e. how much cash can you generate out of 1 dollar (invoiced) revenue.
Cash Flow Margin Ratio = operating cash flow / revenues
Increase prices?
Yes, increasing prices sounds like the least profound idea. It is also the most underrated cash flow lever.
First, cluster your sales (ideally customer cohorts) by volume and margin.
Second, find offerings with low engagement (sales volume) and discontinue any non-strategic (low market-fit) products or services.
For custom solutions, make sure these are available at premium. You need to price-out disloyal customers and free up resources in favor of scaling up your business.
| Low Margin | High Margin | |
| High Volume | You have created high engagement with your offering. Use it as platform for new offerings (i.e. alternatives, bundles) | Cash Cow! Offer discounts for early payments or annual prepayments. |
| Low Volume | If non-strategic, stop the offering. Otherwise increase margins to price out disloyal customers. | Okay with custom solutions, cut prices for standard offerings. |
Payment terms
Incentivize customers to pay early (annual plans with a discount). Start your sales presentation with big volume and (or) annual prepayment.Make sure the discount for annual prepayment is at least 15%.
Improve cash collection by pricing in extended credit terms and diligently chasing overdue invoices. With large accounts and very long payment terms (90+ days) use factoring. Also, use insurance against bad debt for ustomers with no credit record.
If you deal with large accounts and cannot negotiate better prices, call your bank to refinance you outstanding invoices. They’ll be more than happy to do it.
Paying bills
List your vendors by volume and look at the payment terms. When you paying your bills? Call up your largest vendors and offer them 1-2% extra for extended (45 days net) payment terms.
Lease back your assets
Do not buy assets outright. Try to lease them. If you already have an assets on your balance sheet, you do a lease back and release cash flow from your fixed assets.