Five practical ways businesses can ease cash flow and free up capital

In these challenging times, managing to keep your business’ cash flow positive is a tricky business. There are five key factors that business leaders should consider to stay resilient to the changing market and achieve long term growth and success, writes Jason Toshack, Vice President and GM ANZ, Oracle NetSuite.

American business leader Jack Welch famously said: “Cash is king. Get every drop of cash you can get and hold on to it.”

While an old saying, the sentiment remains true – cash is still king to this day, and it’s even more pertinent when managing a business through challenging times.

To keep a business afloat while dealing with changing market conditions, such as supply chain disruptions, staffing shortages, and manufacturing bottlenecks, there are several factors that business leaders should consider to remain cash flow positive.

Shipment delays has been one of the key challenges, as stock shortages have led to diminished sales turnover and thus negatively impacting cash flow.

Australian businesses who were already operating on tight margins have been affected by recent supply chain issues, with over 35 per cent struggling to meet financial commitments in the past year.

5 cash flow management tips to keep your business afloat

For those still soldiering on, the need to rethink cash flow management is more critical than ever before.

Here are five ways business owners can optimise cash flow and free up capital for the coming months.

1. Build a consolidated balance sheet

Businesses should pay greater attention to their balance sheets, where the real impact on cash flow can be made. Line items like accounts receivable and payable, billing, inventory – all are important in their own right, but visibility of the entire business is critical.

In many businesses, the reality is these line items often reside within siloed spreadsheets or documents, complicating its evaluation and optimisation. Losing sight over these line items means losing control over cash flow.

The first step to better capital health would be to consolidate everything on a financial management platform. This creates a centralised balance sheet that acts as a single point of truth and informs all financial decisions moving forward.

2. Automate, automate, automate

With a consolidated balance sheet, efficient steps to ensure a real-time view over cash flow – like automating invoicing and billables – can be made.

Manual invoicing can often create errors that require correction, damage customer relationships and delay payments. And as any business owner knows, sending and tracking invoices manually quickly becomes a tedious and time-consuming monthly chore.

Automated invoicing and billing – and even reminders – for your most frequent customers or suppliers can be a lifesaver, especially when even the slightest payment delay can negatively impact cash flow. Implementing automation on your financial management platform ensures current data is used to populate invoices, which minimises errors, ensures compliance and expedites payments.

3. Focus on tracking and expediting receivables

As the automation of invoicing and billables frees up time and resources, business owners can focus on the lever that impacts cash flow the most – receivables.

During more stable and profitable times, businesses might have been less stringent when it comes to receivables; doing so now may choke capital flow and severely impact business operations.

It’s uncomfortable for some, I know, but expediting receivables from your partners and customers is essential to secure cash to meet monthly expenditures. Remember that your suppliers may likely be looking to do the same – that’s why securing and tracking payments on a consolidated balance sheet is critical to safeguard the solvency of your business.

4. Up your inventory management game

Most businesses probably have established ‘just-in-time’ procurement and inventory management practices. This approach, which emphasised cost-streamlining and agility, is at odds with today’s supply chain constraints. Having capital locked up in last-minute orders that may not arrive for weeks, or months, is a death knell for any business.

Smart businesses are focusing on improving inventory visibility and tracking the utilisation of materials or assets – then using the resulting data to predict future demand and procurement needs.

This level of forecasting, however, requires basic competencies with data analytics and an ERP (enterprise resource planning) system to collect, process, and track data across the entire supply chain. The earlier businesses implement this, the better off they are likely to be cash-wise.

5. Renegotiate supplier contracts and agreements

Finally, it’s a good idea to relook at existing supplier contracts and agreements that may have become irrelevant for today’s business reality. Renegotiate terms like minimum deposits, bulk pricing, or staggered payment schedules – all of which could free up capital on your balance sheet for more pressing payments or investments.

If you deal with regular suppliers or vendors, they will likely welcome new terms if that leads to a higher likelihood of getting paid, and that their most loyal clients remain in business.

And if your business deals with a large array of suppliers, even simple amendments to contract terms can change the financial outlook and resilience of your business for the long term.

Overall, in business today, it’s clear that cash is still ‘king’, but the real winners will be those that manage their cash flow in a smart way.

Through a holistic visibility of activity, real-time data and insights, and strategic partnerships, business leaders can stay resilient to the changing market and keep their focus on long term growth and success as a result.

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