Procurement

Ways to manage your supply chain cash flow

Athena Commercial
July 27, 2021

Cash is indeed King as the saying goes. Without it, companies of all shapes and sizes would not survive. It sounds like it might be simple but companies must ensure that payments aren’t going out of the bank faster than they are going in.

"Supply Chain Cash Flow" is defined as the schedule of payments due to your supplier vs the schedule of payments received from your customers or other revenue sources.

Careful planning ahead enables a business to build up a strong cash reserve and this cash back up can serve as a life safer when a business might experience things to throw it off course. Some of these kinds of situations could be when a supplier doesn’t perform, errors in forecasting, disruptions, technology issues and many more.

Having the cash flow is one thing, but managing that cash flow is another and it is vital for all companies to do it properly in today’s economic landscape. Effective management will allow a company to stay afloat when times get tough and there are processes to put in place that can help prevent any tough times from emerging in the first place.

Below there are 4 key points to consider when it comes to managing and maintaining supply chain cash flow.

1.      Negotiate Terms with Suppliers.

If you are a good customer then you are in the good books with your suppliers. This allows you room for negotiation. If you have a good relationship with your suppliers, you might be able to extend current terms for longer periods of time. When discussed with suppliers, an extension of terms might be much more preferable than losing business altogether.

 

2.      Payment Discount Terms for Customers.

You could encourage customers to pay their invoices today rather than later. Perhaps you could offer customers some kind of discount if they pay quickly. Not all customers will take advantage, but some will and this will in turn help your cash flow.

3.      Factoring.

Factoring your accounts is a good way for manufacturers to mitigate cash flow gaps. Lots of factoring services are now online which makes it much easier for companies to factor their invoices. It is also much easier for customers too.

 

4.      Small Business Loan

This idea might sound a little scary initially but there are plenty of options for short term loans online which are usually simple to apply for. Money can be deposited into your account quite quickly to help prevent temporary cash flow gaps and used in combination with the above approaches may mitigate the risk of this approach.

From strong working relationships to taking things online, there are lots of ways companies can optimize and implement methods to improve cash flow. Any decisions made should be done carefully of course, because the decision to invest in processes is in itself a cash flow decision.

 

Making the right choice is crucial in tough times and sometimes, the most simple choice can be the best. If you are looking to automate processes for example, some software implementations can be tricky, requiring custom functionality and staff training which may present challenges when you consider the upfront costs to implement and ongoing support/upgrade costs. Ensure your investment is the best for your business.

 

Before making any impactful choices, it’s a good idea to perform a cost analysis to see if the cost of failure is higher than the cost of prevention through investment. It is also advised to run any technology purchases through a structured procurement process so you can ensure your getting the best value for money from the market.

 

If you would like to discuss how to implement cost savings for your business or how to implement processes to mitigate cash flow-risks, get in touch with us today.

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