Improve Cash Flow in Your Manufacturing Business
Why Manufacturers Face Cash Flow Challenges and How to Overcome Them
It’s no secret that cash flow management is a challenge for most businesses. Manufacturers, though, are particularly vulnerable, why is this?
Today, we’re taking an in-depth look at manufacturers’ unique businesses challenges and how to safeguard your business against common mistakes that impede cash flow.
The Problems Faced By Manufacturing Companies
Running a manufacturing business is definitely not for the faint-hearted! No matter what your company produces, manufacturing businesses face similar challenges:
- You need to acquire raw materials and deliver before you are paid.
- Your capital equipment costs are high.
- Missed deadlines due to poor project management or insufficient labour resources can cost you an entire deal.
- You have to invest in new technologies (software, hardware and equipment) to remain competitive.
- Skills are in short supply, specialists demand high salaries.
- Customers can be fickle choosing suppliers based on prices or payment terms.
- Legal compliance, especially with health and safety regulations, are burdens on time, money and human capital resources.
- Demand for your product is influenced by retailers’ marketing and performance.
- Competition is fierce, and you’re not only competing on a local level but a global one. Cheaper labour and materials in other countries sometimes cannot be beaten.
- The nature of manufacturing is that you typically have to wait longer than other businesses for payment, so tighter control on your finances is crucial to success.
Sounds daunting, but there is good news! Understanding these factors places you in the perfect position to implement plans to prevent them. There are practical steps that you can apply to overcome these obstacles and secure your cash-flow business longevity.
Steps to Improve Cash Flow
Reduce unnecessary costs
This sounds obvious, but are you cutting back in the right places? Rather than trying to find cheaper materials (which could impact the quality of your product) look at non-revenue generating expenses. Perhaps you can reduce payroll expenses by outsourcing non-core functions.
Know how much cash you need to collect on sales
Profitability is essential. Too many business owners try to absorb costs for the sake of the deal, but, the truth is that you are then giving away your product. Know your break-even figure! It’s vital that you understand how much a particular project will cost you and how much you need to charge to make a profit.
Understand that you can always refine pricing
Sales are not necessarily a case of the lowest price wins. You may have charged low rates initially to get a foot in the market, but now you have a solid reputation for quality and reliability. Customers are willing to pay a premium for your products rather than risk disappointment from a cheaper supplier.
Accept and incentivise multiple forms of payment
These days, customers want (and expect) more convenience than ever before. Every aspect of their experience should be effortless—including payment. The more ways you give customers to pay, the more likely they are to pay you. Some customers welcome the chance to receive a 10% discount for paying COD, others may appreciate the option to pay via credit card.
Review your credit process
Your customers should have a credit agreement with you. It is important to perform regular health-
checks and tighten processes. How do you determine which businesses qualify for credit, the length
of their credit or credit limits? Are you performing regular background checks to reduce your risks?
Be clear and upfront about payment policies
Let your customers know your payment terms upfront. Not only does it create a professional impression of your business, but you eliminate the risk of not getting paid due to unnecessary misunderstandings.
Consider Invoice Discounting from Transaction Capital Business Solutions
Invoice discounting is a form of debtor finance that alleviates cash flow problems using your debtor’s book to secure advanced payments on your invoices.
It is an ideal solution for businesses that offer credit to their customers and have cash tied up in unpaid invoices. There are many benefits to invoice discounting, but key is the peace of mind that you have the money you need to continue operations, without taking on additional debt. That’s because you are simply getting paid the money you are owed faster. What’s more, is that you eliminate the need to chase payment from your customers. We do this for you as a value-add to funding, freeing up valuable time to focus on your business.