5 rules for managing small business cash flow
Cash flow management is vital for your small business. Here are five rules to help you confidently reach your goals.

Updated Wednesday 9th July 2025
Table of contents
Key takeaways
- Invoicing promptly after delivering a product or service helps maintain steady cash flow.
- Consider asking for deposits or staged payments to support cash flow throughout a project.
- Keeping your accounting records accurate and up to date is essential for visibility and forecasting.
- Setting clear payment expectations and tracking follow-ups can reduce late payments.
- Accounting software like Xero can simplify financial management and help you forecast your cash position.
- Separating business and personal finances gives you a clearer picture of how your business is performing.
- Building a cash reserve gives your business flexibility to handle setbacks and seize new opportunities.
Why invoicing is important for cash flow management
Invoicing is part of good cash flow management. Once you've delivered a product or service, don't wait to invoice. That can hurt your cash flow and your business. You should get into the habit of sending invoices for payment quickly
Consider sending invoices immediately, or on a daily basis, depending on the nature of your work. If you are providing a service, think about asking for a deposit upfront, or a payment part-way through. It’s a reasonable request.
A delivered product or service represents money that should be coming into your business – the sooner you invoice, the sooner you'll get paid.
5 rules for managing your cash flow
Invoicing is only the start. To maintain a healthy cash flow, you need more than just strong revenue. You need to be able to collect that revenue too. Here are five rules for managing your cash flow and getting your invoices paid faster:
1. Keep your books accurate and up to date
Your cash flow is only as good as your accounting and reporting. Stay on top of this. Make sure your accounting information is updated regularly. Then you can see the financial state of your business at a glance. To help with this, try using a cash flow projection template to project your future cash position.
2. Set clear expectations with your customers
Be clear and fair while staying professional – this approach usually gets results. A reference tool can help you track follow-ups and reminders efficiently.
Keep a close watch on your accounts receivable turnover at all times. If it’s trending up, it might be time to step up your efforts at chasing payment. As receivables age, their quality goes down, so you should act sooner rather than later.
3. Make your accounting simple
If numbers aren't your strong suit,accounting software like Xero can help simplify financial management, and a professional accountant can provide extra support if you need it.
Use accounting software analytics, so you always know your cash position. It will also help you forecast your cash flow for planning purposes. For example, maybe you’re expecting a big order next month. How will you know if you'll have the workforce to handle it and the inventory to supply it?
A reliable accounting system will help you track and report on key business metrics. These include accounts receivables aging, operating margins and inventory turnover. Using a cash flow statement template can help you keep a clear record of your cash movements. You can also check out this example cash flow statement to see how it should be structured.
Having a good handle on these business metrics will help you manage your cash flow confidently – and take advantage of new opportunities.
4. Keep your business and personal finances separate
This is essential if you want to understand your business cash flow and forecast how it might change. Mixing your business and personal finances can leave you uncertain about business performance.
Xero lets you easily separate your business and personal transactions, so your records stay organized and clear.
So keep them separate. That way you'll know how much cash your company is generating. Then you’ll be in a good position to properly pay yourself – and use excess cash to strengthen and grow your business.
5. Build a cash reserve
Having access to cash gives your business the flexibility and confidence to handle whatever comes your way.
Sometimes, you might need to use cash flow financing to make ends meet. But the best way to manage cash flow like a pro is to build a cash reserve. A cash reserve provides the cushion you need to manage unexpected events. But how do you estimate the right amount to set aside?
A great starting point is to analyze an example cash flow projection to understand typical cash flow patterns and potential gaps. It can insulate you from the economic cycle and the whims of banks and other lenders. It will let you take advantage of opportunities when they present themselves and give you the confidence and finances you need to grow your business.
Building a cash reserve puts you in a position of strength. It might mean paying yourself a little less in the short term, but in the long term it will put your business on the path to success. That ultimately means more money in your pocket.
Use Xero to make cash flow work for you
Managing cash flow is critical for small businesses, and offering preferred payment options plays a big role in keeping customers happy. With Xero's Tap to Pay on the Xero Accounting App, businesses can now accept in-person, contactless payments quickly and securely. Powered by Stripe, this feature allows you to create invoices and get paid on the spot using only your mobile phone, ensuring smooth transactions and faster payments.
FAQs on cash flow management
Here are some frequently asked questions to help you effectively manage your small business cash flow:
How do I manage cash flow effectively?
Managing cash flow means tracking money as it enters and leaves your business. Send invoices quickly and follow up on overdue payments, keep your records up to date, and forecast your income and expenses. It also helps to use tools such as an accounting system that shows you where your cash stands at any time.
What is the main objective of managing cash flow?
The main objective of managing cash flow is to ensure your business has enough money to cover day-to-day expenses, like paying staff and suppliers, while planning ahead for growth or unexpected costs.
What is an example of cash flow management?
An example of cash flow management is creating a monthly cash flow forecast to track when money is coming in from customers and going out for things like rent, wages, or inventory—so you can spot and fix potential shortfalls before they happen.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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