How to Improve Cash Flow in Your Manufacturing Business

Cash-flow strategies are imperative in manufacturing because the cash-conversion cycle can be quite lengthy. Here are several strategies to consider for your business:

Track Your Cash Flow
The only way to know where your cash is going is by monitoring your cash flow biweekly or monthly.

Practice Forecasting

Generate a cash-flow forecast monthly or quarterly. This can help you determine if you will receive enough cash to cover upcoming expenditures. If not, you can enact changes to achieve cash-flow goals.

Streamline Processes

Time is money, so aim to shorten the time required to complete any internal process. Look for opportunities to optimize automation, workflows, and work-station functionality.

Improve Timeliness of Receivables

• Look closely. Evaluate every customer’s credit risk and current situation to determine if they are going to be a liability. If a customer’s business has been affected by internal problems or external pressures, that may impact their ability to pay.
• Request deposits for custom projects. This will help cover costs associated with fulfilling custom orders.
• Negotiate milestone payments for long-term projects. Ask for a series of payments based on accomplishing defined objectives.
• Use a simple design for invoices. Make it easy to read, with the amount, terms, and instructions clearly stated.
• Issue invoices promptly. The longer you wait to submit an invoice, the longer you must wait to receive your money.
• Accept multiple forms of payment. By offering a range of convenient payment options, you can speed up cash collections.
• Offer a small discount for early payments.The slight loss of income may be a worthwhile compromise if it accelerates payments and alleviates short-term cash shortages.
• Manage late payers proactively.Monitor the status of every invoice, and send reminders for delinquent payments. Penalize late payers by adding interest to overdue amounts.
• Update the way you manage receivables. If you are still using spreadsheets, you are due for an upgrade. Explore software applications that streamline accounts-receivable tasks, and select the one that best fits your business.

Renegotiate with Vendors and Suppliers
This can be especially effective if you maintain strong working relationships. You may be able to negotiate lower prices, extended payment terms, or lower minimum-order volumes. Also, set up electronic payments, when possible, so you can wait to pay bills closer to the actual due dates.

Leverage Interest-free Credit
Using a business credit card can improve cash flow. Find one that has no annual fee and a low annual percentage rate, and then use it wisely. Schedule payments carefully to avoid interest charges.

Open a Business Line of Credit

A credit line is a revolving account that lets you draw cash when you need it, repay that amount, and then draw again. This is entirely different from taking out a loan – a one-time lump sum with strict repayment terms.

Raise Your Prices
If you have not increased your prices in a while, consider doing so now to enhance your cash flow. At the same time, be sure to promote high quality, value and reliability to customers to substantiate your price increases.

Reboot Marketing and Sales Efforts
Take inventory of your current efforts and determine where you can make changes. Strive for more impactful marketing that will attract new customers, and improved sales tactics that will clinch more contracts.

Take Advantage of Tax-Based Incentives and Credits
You may benefit from government perks, such as Research and Development tax credits, the federal Work Opportunity Tax Credit, the State of Illinois exemption for machinery used in manufacturing, and the Illinois Economic Development for a Growing Economy (“EDGE”) tax credit program. IMEC also offers programs like Registered Apprenticeship Programs that will grant you access to federal funding opportunities and tax credits towards building and strengthening your workforce.

Conclusion
By implementing some of the strategies listed above, you can help ensure a steady stream of cash to sustain your manufacturing business. For additional cash-flow assistance, contact IMEC.

Get additional insights from these on-demand webinars:
INCREASE CASH FLOW: Research and Development Tax Credits Webinar
R&D tax credit allows businesses of all sizes to reduce their taxes and increase cash flow. Do you qualify for things you are already doing?
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Managing Cash Flow in a Crisis Webinar
Learn the 5 C's of managing cash flow to help your company adjust to recent disruptions, and proactively prepare for the future.
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Pricing in a Crisis Webinar
Discover how increases and decreases in price can complement traditional cost-cutting measures while delivering more to the bottom line.
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