How top suppliers overcome common cash flow challenges

by | Sep 19, 2024 | Inventory Management, Order Management, Suppliers

No matter how efficient your operations are, cash flow challenges can disrupt your ability to meet obligations and seize opportunities. While advanced systems and tools can help streamline processes, they don’t eliminate the need for proactive cash flow management. How you manage issues like payment delays, seasonal demand fluctuations and unplanned expenses deeply affects the financial health and resiliency of your business.

Here, we’ll discuss suppliers’ most frequent cash flow challenges and offer some practical solutions to turn them into business opportunities.

1. Payment delays from customers

Extended payment terms or late payments from customers can create gaps in your cash flow, making it difficult to cover essential expenses like raw materials, labor and operational costs.

Impact: Delayed payments strain your liquidity, forcing you to juggle resources or seek short-term financing. This lack of predictability can hinder your ability to invest in new opportunities, pay your own suppliers on time and maintain smooth operations.

Solutions:

  • Automate invoicing and follow-ups: Automated invoicing systems can help streamline the billing process and reduce the chances of errors or delays, while automated follow-ups keep your payments top-of-mind for customers.
  • Offer early payment discounts: Incentivizing customers to pay early by offering a small discount for prompt payment can alleviate immediate cash flow challenges.
  • Leverage invoice financing: Invoice financing allows you to access funds tied up in unpaid invoices, generating cash flow without waiting for customers to pay.

2. Seasonal demand fluctuations

Cash flow can surge during peak seasons, only to dip dramatically shortly after. The uneven flow of funds can lead to cash shortages at critical times, affecting your ability to maintain operations and meet financial obligations.

Impact: When demand is high, you may need to invest heavily in inventory, staffing and other resources, which ties up significant amounts of cash. During slower periods, revenue drops, so fixed costs like rent, utilities and salaries can strain your available cash.

Solutions:

  • Use demand forecasting tools: By analyzing historical data and market trends, you can adjust your inventory levels and staffing needs to align more closely with expected demand, reducing the risk of overstocking or stockouts.
  • Implement just-in-time inventory practices: Just-in-time (JIT) inventory management helps you minimize excess stock by ordering goods closer to the time they are needed.

3. Inefficient inventory management

Holding too much inventory ties up valuable cash, but holding too little can lead to missed sales and dissatisfied customers. Striking the right balance is crucial for maintaining a healthy cash flow and ensuring that your business can meet demand.

Impact: Excess inventory locks up cash that could otherwise be used for essential expenses, such as paying suppliers or investing in growth. On the other hand, insufficient inventory can lead to stockouts, lost sales, and damage to customer relationships, ultimately impacting your revenue and cash flow.

Solutions:

  • Optimize inventory levels: By analyzing sales patterns, lead times and reorder points, you can align inventory levels with demand and minimize the risk of over- or under-stocking.
  • Regularly review inventory turnover: Reviews of inventory turnover rates can help you adjust your purchasing strategies by identifying slow-moving items that tie up cash.

4. Unplanned expenses

Whether it’s a sudden equipment breakdown, unexpected supplier price increases or emergency repairs, unforeseen costs can drain your cash reserves and throw your financial planning off course.

Impact: Unplanned expenses often require immediate attention, forcing you to divert funds from other areas of your business and making it difficult to cover day-to-day operations, pay bills on time or invest in growth opportunities.

Solutions:

  • Build a cash reserve: Setting aside a portion of your profits during good times ensures that you have the funds available to handle emergencies without disrupting your overall cash flow.
  • Closely monitor budgets: By keeping a close eye on your expenses and comparing them against your budget, you can identify areas where costs might rise and take preemptive action to mitigate the impact.

5. Complex supplier payments

When your payment schedules with suppliers don’t align with your cash inflow from customers, it can lead to financial strain that forces you to stretch resources or seek costly short-term loans.

Impact: Misaligned payment terms can cause cash flow gaps that make it difficult to manage day-to-day expenses, invest in growth or meet your own payment obligations on time.

Solutions:

  • Negotiate payment terms: Work with suppliers to negotiate more favorable payment terms, such as extended periods or flexible payment schedules.
  • Track and manage payment schedules: Implement a system to monitor and manage payment schedules, ensuring that you’re aware of all upcoming payments.

How SPS can help

While these challenges can put pressure on your finances, they can be managed with the right strategies. Taking proactive steps—such as automating invoicing, optimizing inventory levels, building cash reserves, and negotiating better payment terms—can help you overcome these challenges and maintain a healthy cash flow. Here’s how full-service solutions from SPS can put those steps into action:

  • Get automated invoicing: Automate your data exchange for faster, more efficient billing
  • Streamline your funding: Invoices can be transferred to Kanmon*, the financing provider, for faster access to funds.
  • Always-on cash flow: Faster funding from invoice financing can help you keep operations running and make the most of growth opportunities.

Interested? See how a flexible financing solution from SPS can alleviate the challenges that are holding your business back.

* Kanmon is a licensed commercial lender founded by a team with deep lending experience and backed by FIS Global, a Fortune 500 financial technology business. For more information about Kanmon, visit www.kanmon.com

SPS Commerce Blog Team
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