Cash flow management is one of the most critical skills an entrepreneur can learn to bring success to a wholesale business. You don’t need an MBA from Harvard - but you do need to know how to optimize your cash flow. It’s the lifeblood of any wholesale business. Positive cash flow (i.e. when the amount of incoming cash is higher than the amount of outgoing cash) empowers owners to run operations efficiently, cover expenses, match client expectations, and reinvest into the company for future growth opportunities.
In more figurative terms: positive cash flow keeps the ship afloat and moving forward. When cash flow is negative or when the flow has stagnated altogether, the ship grinds to a halt.
Ultimately, cash flow management is a key that unlocks the optimal profitability and efficacy of a wholesale business. Considering that wholesale CPG businesses tend to encounter months-long time lags between cash going out to local or international suppliers and cash coming in from clients settling their invoices, it’s all the more important to learn cash flow management as a business skill.
What causes cash flow management issues?
Because of the nature of the industry, CPG wholesale businesses are subject to a unique set of cash flow issues that other businesses are less likely to encounter. For one, CPG wholesalers are subject to seasonal fluctuations in demand. Secondly, CPG wholesale businesses are vulnerable to the costs incurred by overstocking.
Seasonal demand can have a profound effect on cash flow for CPG wholesalers. Customer demand for these kinds of products is subject to seasonality. Nobody wants to eat a popsicle in the dead of winter, but Halloween is like Christmas morning for candy brands (so to speak). The seasonal demand for consumer packaged goods has a direct impact on the seasonality of your cash flow.
Despite first appearances, overstocking is not a good way to prepare for the future. On the contrary, overstocking goods can cost the business in the following ways.
The investment sits in a warehouse without creating cash flow or profits, which means that it is incurring financial costs for the business
The cash flow that would result from the movement of excess product freezes up, preventing its use in other areas of the business until the stock is liquefied into cash
Similarly, too much excess stock can negatively impact cash flow because it ties up capital in the form of inventory
Because of how overstocking can negatively impact cash flow, excess inventory can be considered a cost to the business.
4 tips for cash flow management
Fortunately, there are cash flow management solutions to remedy the challenges described above. The stronger your cash flow management skills are, the faster you can bridge the gap between cash flowing in and cash flowing out - it’s a vital business finance issue. Here are our top tips to optimize cash flow management for wholesale businesses.
1. Aim for efficient delivery
Prompt delivery is essential not only for your cash flow - it creates a positive customer experience and cultivates a longer, more fruitful customer relationship. Furthermore, delays in the delivery of CPG goods can result in incorrect cash flow statements and reporting.
One way to improve cash flow management is by managing deliveries more stringently. Sure, some delays are far beyond our control. But keeping careful and detailed records of when deliveries go out and when they arrive at their destination can help you forecast your cash flow patterns with more accuracy.
That being said, tracking delivery updates through email alone is a Sisyphean task. It’s best to outsource that kind of hyper vigilance to a comprehensive wholesale management system like Akos.
2. Optimize invoicing
One of the best ways to ensure consistent cash flow is by invoicing clients as soon as you’ve shipped their goods. The sooner you invoice, the sooner you get paid.
But what to do about clients that are late in settling their invoices?
Well, ensuring prompt delivery and invoicing will already widen the margin for clients to settle their invoices comfortably within your billing cycle. But, just to ensure that clients settle their invoices within the ideal timeframe, it helps to send them a timeous reminder of outstanding invoices.
Chasing after unpaid invoices is an unpleasant time-suck, so we’d recommend automating this process to an OS that sends an appropriately-timed reminder based on when the delivery was made and the invoice was sent out. In short? Automated payment reminders = accelerated payment collection.
You can take a few other measures to optimize the turnaround time between invoicing and receiving payment. These include:
Reducing your payment terms so that they’re due sooner
Offer customers multiple payment options to settle their invoices
Offer a discount on early settlement, or charge late fees on overdue payments
As long as these measures do not negatively impact how competitive your rates are or how healthy your accounts are with certain clients, they can be extremely effective ways to expedite the journey from invoicing to payment.
3. Maintain 360-degree cash flow visibility
The first step towards truly effective cash flow management is gaining full visibility over when and how cash is flowing in and out of the business. But manually tracking down every trace of cash flow where they typically live - that is, in your inbox - could take hours and hours of hunting. Even if you set aside time that was specifically dedicated to the task.
Tracking accounts receivable and payable in real-time is not a common practice. It’s hardly a surprise - performing the task manually is nothing short of nightmarish and near-impossible. The solution, then, is to move towards an automated rather than a manual solution.
Wholesale CPG businesses would benefit significantly from an operating system that automatically files all accounts payable, payments, and receipts, as well as all accounts receivable and unpaid invoices into one, easy-to-use dashboard. When your wholesale management system is automatically pulling this data from sources like your email inbox, you can rest assured knowing that you have an up-to-date record of financial information that gives you a clear and comprehensive overview of your cash flow patterns.
This is especially important for wholesale CPG businesses, as the gap between making payments to suppliers and receiving payments from clients typically ranges between 60 and 180 days. That’s a lot of time for your inbox to accrue hundreds and hundreds of emails that, without an OS solution geared towards your wholesale needs, would have taken you hours to sift through.
4. Use a factoring platform as a cash flow solution
Leveraging alternative funding solutions like invoice factoring or purchase order financing is an accessible way for small wholesale businesses to keep cash flowing. Factoring can also empower small businesses to fulfill bigger purchase orders, take on bigger contracts, and expand their business operations.
However, even alternative financing can pose an obstacle to small wholesale enterprises - not because of the cost of finance, but because most alternative financiers aren’t well-positioned to access and understand the data that wholesalers can supply to support a funding decision.
Akos looks at your data differently to give you access to the funds you need to improve cash flow in 24 hours or less. Because the Akos operating system already has access to the business’s cash flow patterns and is specifically geared to cater towards enterprises in the CPG industry, we are uniquely positioned to approve speedy access to cash flow solutions in a way that most traditional and alternative funders are not.
The ultimate solution to cash flow management? Combine wholesale business operations with a tailored factoring solution
There are plenty of wholesale management tools on the market, but very few are designed with the specific needs of small wholesale businesses in mind. Even fewer are designed with a built-in factoring solution that empowers CPG wholesalers to access cash flow solutions in 24 hours.
Happily, Akos does it all. With an intuitive understanding of cash flow in the CPG wholesale industry, ours is a solution that empowers you to run your business with a single operating system. Automate your back office and access agile financing services all in one place. Try Akos today.