“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” — William Arthur Ward.
Maintaining adequate cash flow is a major factor when operating a healthy business in times of growth and prosperity. During tough times it takes on an amplified role. The fundamentals of collecting on receivables, reducing expenses, reducing inventory investment, and the like are still in play, but these and different strategies need to be examined in difficult economic times.
In that theme, I want to share tips authored by one my colleagues at IMEC in early January, before the current crisis rose to prominence in our lives.
Strategies offered in that article are valuable and very detailed. At this time l want to focus on what I feel are the four most important approaches that will be most useful in the next few months.
- Increase Sales within your Top Relationships. Use an 80/20 approach to identify your customers by four segments based on revenue and profitability. This exposes hard data on where you can focus your efforts to get the most impact for tomorrow (and sets the table for better results in the long term). For your top two segments, consider the following:
- Solidify and increase the contact and relationships with your top customers.
- Ask for new business.
- Look for ways to add value to those top relationships.
- Accelerate Collection of Receivables. Consider offering discount terms to entice prompt payment. While you receive less in payment, you improve fluidity and options right now and reduce the risk of default.
- Do not be a bank. You may find yourself where you cannot secure better terms from your suppliers yet by legacy, extending more generous terms to your customers. If you choose to be a lender, get something for it such as committed long term orders.
- Offer discounted terms strategically. Offers today may turn into unexpected commitments over time. Be clear that the offers are due to extraordinary circumstances, and “get” something of value in return.
- Evaluate and Adjust your Inventory Investment Strategy. Don’t necessarily slash inventory spending completely. Purchasing wisely would be a better course. If you can get reduced prices for your materials, it may be advantageous to build your inventory to reduce ultimate lower inputs per unit. However, in most cases, paying slightly more for reduced quantities and more frequent shipments may fit your short-term cash flow goals in a better fashion.
- Use the Moment to Improve Processes and Profitability. Now is the time to evaluate, train and retool.
- Improving quality in processes results in short term benefits of reduced cost, improved productivity, and increased profitability.
- It also can improve the employee experience resulting in longer term outcomes of reduced turnover, increased retention of talented staff, and improved recruitment efforts.
- Invest the time now for better outcomes later. Make the time! It will be worth it.
If you have the talent and skills in your organization to implement these strategies, get started today with an internal assessment and put an action plan in place. If you would benefit from a partner to help, reach out to a trusted asset like IMEC. Our experts understand manufacturing challenges and has access to resources you can leverage to gain a competitive advantage.
Get the full whitepaper to review the other cash-flow strategies.
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