How to get better cash flow when you're self-employed

There are 3.2 million sole traders in the UK and you can guarantee that cash flow is at the forefront of the mind of every single one.


When you are self-employed, you are reliant on a continuous stream of customers or clients making payments on time. Without enough cash in hand, you could find yourself in financial uncertainty, and when liability rests on your own shoulders, that’s not a nice place to be.


So, how to get better cash flow? There are some simple steps you can take to maintain a steady flow of revenue and make your business more profitable in 2022.


Cash flow to stay afloat


“The three most dreaded words in the English Language are ‘negative cash flow’.”

- Sir David Tang.


While being self-employed undoubtedly has its benefits, inadequate cash flow can cause huge amounts of stress for sole traders. A potentially inconsistent client base, coupled with lengthy payment terms and late paying clients, are all factors that can contribute to cash flow issues which can negatively impact your business...


For this reason, putting in place a solid cash flow strategy is imperative for longevity and success.


7 ways to improve cash flow when you’re self-employed


Prepare cash flow forecasts and stick to a budget


First things first, if you haven’t done so already you should write a budget for yourself and your business proposals. When you are self-employed, the amount of work coming in can vary, which makes predicting income and expenditure tricky. Because of this, it’s also important to create cash flow forecasts.


A cash flow forecast will detail when you can expect money to be sent and/or received on a more frequent basis. This differs from a budget, which shows broader income and expenditure figures over the duration of a given project.


Set aside a savings cushion


Though not always possible, it’s important to try and put a percentage of the money you’re earning aside as savings. Having a financial buffer in the bank can help to tide you through quieter months, whilst also ensuring you have funds to cover emergencies and finance unexpected costs.


Send invoices in advance


When it comes to receiving timely payments, the earlier you send out invoices, the better. Prompt issuing of invoices can encourage clients and customers to pay early, which helps to reduce cash flow gaps created by large payment windows.


Establish clear payment terms


As well as sending out your invoices early, you should establish clear payment terms from the onset, to help avoid problems with clients further down the line. Your payment terms should set out clear payment dates, and you might want to consider including penalties for late payment, such as interest charges.


Raise cash against your invoices


If you want to cut the wait time between receiving payments for your products or services, consider raising cash against your business invoices. This flexible funding solution is a great way for sole traders to smooth out cash flow, get paid quickly and save time and energy chasing payments.


The problem is that when you are a sole trader, banks and traditional lenders tend to treat you as something of a hot potato! At Penny we do things differently; we equally welcome all sorts of businesses and specialise in helping “one man bands”. You get an unlimited business funding account from Penny simply by exchanging your invoices for cash when you need it.


Claim self-employed tax deductible expenses


Claiming expenses is another way you can save money as a sole trader. When filing your annual Self Assessment tax return, you are able to deduct ‘allowable expenses’ for costs that directly relate to your business.


This does not include money that has been taken from your business to pay for personal purchases. However, you are able to claim:

  • Office costs

  • Advertising and marketing

  • Costs related to your business premises

  • Travel related costs

  • Clothing expenses

  • Stock or raw materials


Reconsider your rates and pricing


If you work all hours under the sun and continually find yourself having cash flow problems, it might be time to reconsider your pricing structure.


When offering services as a self-employed individual, it can be difficult to determine what rates to charge customers. However, as time goes on and you begin to feel more confident in your ability to retain clients and produce quality work, you shouldn’t be afraid to raise your prices.


Cash flow management in 2022


The economic uncertainties caused by the Covid-19 pandemic have made navigating cash flow management all the more difficult during the past couple of years.. When you are self-employed, it is now more important than ever to take steps to boost your business’s liquidity. Unlocking money from unpaid invoices is one easy way to do this, which is where we can help!


Why not get in touch with the Penny team and find out more?


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