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C2FO Powers Early Payment Programs for the World’s Largest Companies.
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Here are six strategies for addressing one of the biggest risks to a business.
When a company experiences a cash flow problem, it needs to find a solution fast. A cash shortfall can quickly multiply into a host of other dangers.
Fortunately, there are several ways to get relief quickly. Businesses can also reduce their risk over the long term by implementing a few larger investments in their operations.
No matter what type of cash flow challenge your company is facing, here are some actionable strategies for resolving the issue effectively.
Depending on the customer, it could take 60 days, 90 days or even longer for payment to arrive. Fortunately, companies can use services that let them access those funds ahead of schedule.
If a company can pay its suppliers later, that increases the company’s cash on hand — maybe enough to get through a difficult period. Here are a few tips for negotiating longer terms.
If customers are taking too long to pay, it might be because the company is taking too long to send the invoice. Or maybe the invoices are inaccurate, so the customer is spending time contesting the charges.
Adding a system of timely reminders could also encourage customers to pay sooner, bringing in badly needed cash.
Inventory can become a drag on cash flow if it takes the company too long to turn it back into cash. Aging inventory also means higher holding costs in the form of storage and other expenses.
Companies can improve liquidity by improving their inventory management. For example, they could employ just-in-time ordering, keeping inventory on hand for shorter periods of time. Be careful with this strategy, though. There’s also a higher risk of running out of stock in the event of a supply chain disruption.
When a company diversifies its income streams, either by introducing new products and services or by entering new markets, it reduces its risk of a cash shortfall. If one stream weakens — or totally shuts down — the company can still generate cash from the others.
There’s a potential risk here, too. A company can overcommit resources to new initiatives that don’t work out, making its cash situation even worse. Any new efforts need to be a good fit for the existing business.
It takes time and money to implement new billing and accounting platforms, but they can automate many time-consuming tasks. They can also speed up invoicing or streamline payments — for example, by letting customers pay their invoices through an online portal.
Analytics offer another way to increase cash flow over the long term.If the company can forecast demand, it can fine-tune its inventory and pricing strategies, allowing it to maximise incoming cash.
The same goes for customer behavior. A company might use data-driven analysis to identify the customers most likely to churn (so they can be targeted with special offers) or those most likely to default (so they won’t be offered generous payment terms).
It’s also important to produce a cash flow forecast regularly so a company can identify problems as soon as possible.
Companies optimise their cash flow in multiple ways. Sometimes it’s through faster solutions, like early payment, improved invoicing or negotiating longer terms. They could also take a longer view. They might improve their inventory management, add income streams or refine operations.
The smartest businesses have both types of solutions in their toolboxes, giving themselves more options for responding to cash flow problems.
Another great resource? C2FO Early Pay. With our solution, companies like yours can quickly, affordably access working capital whenever necessary. Learn more about how it works.
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