With current inflation rates at 7.9%1 in the UK and 6.4%2 across the EU, B2B businesses are facing significant challenges in effectively managing their working capital. These challenges have been further exacerbated by a recessionary environment and decreasing demand for goods and services. Recent data from Eurostat, the EU’s statistical agency, revealed a 0.1% contraction in gross domestic product (GDP) during the first quarter of 2023. Similarly, a recent report by the National Institute of Economic and Social Research highlights that the UK economy has now also entered a recession.

As economic uncertainties mount and costs rise, businesses face unprecedented strain, making it crucial to find ways to enhance cash flow and maintain a healthy level of working capital. This post will outline 8 tried and tested strategies your B2B business can adopt to manage cash flow better, increase working capital and unlock financial stability.

8 ways to improve working capital

Below are key strategies to improve your business’s cash flow and optimize your working capital. From cash flow management to inventory optimization, implementing even a few of these strategies can drive remarkable improvements.

1. Accelerate accounts receivable collections

Streamline invoicing & payment processes: 

Ensure your invoicing process is efficient and accurate. Send out invoices promptly after the completion of goods or services and clearly outline the payment terms and due dates. Clear invoices eliminate confusion and encourage customers to pay on time. You should also make it easy for customers to pay by offering multiple payment options.

Offer Incentives for early payments: 

Encourage customers to settle their invoices quickly by providing incentives for early payments. Offer discounts or other rewards for those who pay within a specified time frame. This approach creates a win-win situation as customers benefit from cost savings while your business receives cash faster.

Monitor & follow up on outstanding invoices: 

Keep a close eye on your accounts receivables to identify overdue invoices. Implement a systematic follow-up process for late payments, starting with friendly reminders and escalating as needed. Personalized communication and a proactive approach can prompt customers to address their outstanding balances.

2. Slow accounts payable outflows

Negotiate better payment terms:

Work with your suppliers to negotiate favorable payment terms. Request extended payment periods that align with your business cycle provide breathing room to manage cash flow effectively. 

Take advantage of early payment discounts: 

On the flip side, sometimes it pays to pay early. Take advantage of discounts offered by suppliers for early payments. Doing so will save you money and position your business as a reliable and valued partner in the eyes of suppliers. Such a favorable reputation can lead to further benefits, such as improved credit terms or preferential treatment during times of high demand.

Use a credit card with a grace period: 

Utilizing a credit card with an interest-free grace period to pay bills allows more time to manage payments without incurring immediate cash outflows. However, it’s essential to set spending boundaries and use the credit card responsibly to ensure a positive impact on cash flow. 

3. Optimize inventory management

Implement Just-in-Time (JIT) inventory system: 

The Just-in-Time (JIT) inventory system aims to minimize the inventory held in stock by ordering goods and materials only when they are needed for production or to fulfill customer orders. By adopting this approach, businesses can reduce their carrying costs, storage expenses, and the risk of inventory obsolescence. With lower inventory levels, less capital is tied up in stock, leading to improved cash flow.

Regularly assess inventory & identify slow-moving items: 

Regularly analyzing inventory performance is essential to identify slow-moving items taking up valuable warehouse space and tying up capital. These slow-moving items are often more challenging to sell, and holding onto them can hinder cash flow. By identifying such items quickly, businesses can take proactive steps to address the issue, such as offering discounts or promotions to clear out the inventory faster.

4. Partner with a Buy Now Pay Later provider

Immediate payments: Collaborating with a BNPL provider like Mondu empowers B2B companies to extend the option of deferred payments to their customers. Even if customers pay in installments, the company receives immediate payment for their goods or services.

Accelerated sales cycle: BNPL options eliminate the upfront payment barrier, encouraging customers to proceed with transactions they may have postponed due to cash flow limitations. This leads to increased sales volume and faster transaction velocity, improving cash flow.

Reduced admin/collection efforts: By working with a BNPL provider, the risk of non-payment or default is transferred to the provider. Consequently, B2B companies experience reduced exposure to bad debts and eliminate the need for in-house collections efforts, which cost money. They receive an upfront payment from the BNPL provider, ensuring improved cash flow stability.

Enhanced customer acquisition and retention: Offering BNPL options attracts new customers who appreciate its flexibility and affordability. Additionally, BNPL fosters customer loyalty and retention by providing a convenient payment solution. Satisfied customers are more likely to engage in repeat business, further bolstering cash flow.

5. Improve cash flow forecasting

Develop accurate cash flow projections: 

Use past data, sales forecasts, and other financial information to estimate when cash inflows and outflows are expected. Accurate projections enable better financial planning, allowing the company to anticipate periods of surplus or deficit and make informed decisions accordingly. This proactive approach can help avoid cash flow crises and ensure the availability of funds when needed most.

Utilize software tools to enhance cash flow monitoring

Employing specialized software or tools dedicated to monitoring cash flow in real time can significantly enhance cash flow forecasting. These tools automate the tracking of cash inflows and outflows, providing up-to-date insights into your business’s financial situation. Real-time monitoring simplifies the task of identifying potential cash flow gaps, allowing you to take prompt corrective actions. 

Regularly review financial statements and reports: 

Reviewing financial statements and cash flow reports on a regular basis is essential for assessing and improving your business’s cash flow. By analyzing these statements, your business can identify trends, detect potential bottlenecks, and uncover opportunities to optimize cash flow management.

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6. Reduce overhead costs

Identify non-essential expenses and cut them

Review your overhead expenses carefully to identify any non-essential items, and then remove them from your budget. Being prudent with overhead costs can take the pressure off and have a substantial positive effect on your cash flow.

Optimize energy usage & negotiate lower utility bills

Adopt energy-saving strategies to optimize energy usage, and proactively negotiate with utility providers to secure more favorable rates, thereby lowering ongoing operational expenses.

Consider shared office spaces or remote work options

Considering alternative workspace options can be advantageous for your cash flow and bottom line. Shared office spaces or remote work arrangements are worth exploring if feasible. These alternatives can lead to a reduction in rental and infrastructure expenses while still ensuring that our team operates efficiently and effectively.

7. Encourage repeat business and referrals

Build strong customer relationships

Strong customer relationships go beyond just providing excellent customer service. It involves understanding your customers’ needs, preferences, and pain points and tailoring your interactions to address them effectively. By actively listening to your customers and engaging in open communication, you can establish trust and rapport, making them more likely to become loyal patrons. Additionally, staying responsive to customer feedback and quickly resolving any issues will further reinforce the relationship, showing that you value their business and satisfaction.

Offer loyalty programs or incentives

Loyalty programs are an effective way to incentivize repeat business. Offer rewards, discounts, or exclusive offers to customers who consistently choose your products or services. These rewards can range from points-based systems to tiered membership levels, providing customers with a sense of exclusivity and value. As customers accumulate rewards, they will be motivated to continue purchasing to unlock more benefits, reinforcing their loyalty to your brand.

Offer trade accounts

Trade accounts are a powerful tool that has played a pivotal role in the world of commerce for decades. They enable customers to make multiple purchases and pay for them later, with one consolidated payment, usually within 30 days. Offering trade accounts gives buyers greater purchasing power and a highly convenient shopping experience that promotes frequent purchases and ultimately translates to more sales. With Mondu’s Digital Trade Account solution, you can offer trade accounts to your customers and experience these benefits while enjoying upfront payment after each purchase and complete protection from payment default to ensure cash flow stability.

Encourage satisfied customers to refer others

Word-of-mouth referrals are powerful because they come from trusted sources—satisfied customers. Encourage your happy customers to share their positive experiences. Offer referral rewards or discounts to both the referring and new customers, creating a win-win situation. Positive word-of-mouth can significantly expand your customer base and bring in new business, all without the additional costs associated with traditional advertising.

8. Increase sales and revenue

Develop effective marketing & sales strategies

Investing in well-planned and crafted marketing campaigns and sales tactics can help your business attract new customers and broaden your customer base. Use market research and customer insights to target the right audience and effectively showcase your product’s value.

However, before investing in new campaigns and scaling up your marketing efforts, it’s essential to scrutinize and optimize your current campaigns and tactics. Channel your resources into optimizing your most successful strategies while phasing out those that fail to yield desired outcomes. This will help conserve your marketing spend and improve your cash flow before committing to further campaigns.

Upsell and cross-sell to existing customers

Selling to existing customers is typically easier and cheaper than acquiring new ones. By understanding your existing customers’ needs and preferences, you can strategically offer complementary products or upgrades to increase spending. Upselling encourages customers to upgrade to premium versions or higher-tier products while cross-selling introduces them to related offerings they find valuable. In this way, you can both enhance customer satisfaction and boost your revenue without the acquisition costs associated with attracting new customers.

Explore new markets or expand product offerings

Diversifying into new markets or expanding your product offerings can unlock fresh revenue streams and opportunities for growth. Conducting market research and analyzing consumer trends help identify untapped markets or potential product extensions. Introducing products or services that cater to new customer segments or address emerging needs can widen your reach and attract a broader customer base. This diversifies your business’s revenue sources, making you more resilient to market fluctuations and driving overall revenue growth.

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Find out here how you can use BNPL to improve the liquidity of your B2B buyers in times of crisis and thereby increase your sales.
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Yvonne Acker

Mondu was founded in August 2021, exited stealth mode and announced a $14 million seed funding in October, launched in April 2022, and reached 100 team members in May.
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Kristi Ruusna

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