In the post-pandemic era, cash flow is an increasing concern for enterprise supply chains. It has become a specific challenge for transportation as the capacity within the global supply chain is tightening while demand is rising, along with shipping prices. Therefore shippers, carriers, and vendors now need to ensure a faster influx of cash, and a slower rate of outgoing cash. These impacts require companies to implement more long-term changes to help them through the effects of the past year.
According to a recent report, the Cash Flow Management Market size, 2020-2025, is estimated to reach $ 1,170 million, at a CAGR of 25.9% during the forecast period. Today, transportation activities require many steps before they can be executed correctly and open the door for more cash flow. There are ways that the company can take action to improve cash flow management but before that let’s understand what cash flow is.
What is Cash Flow?
In simple terms, cash flow refers to the net amount of cash and cash equivalents being transferred in and out of a company. It contains two aspects; Inflows, which means cash received, while money spent represents outflows.
Cash flow management is vital to maintain the liquidity of a business and its growth. Today there has been an increasing adoption of new technologies that contribute toward improving the efficiency of cash flow management in the supply chain.
Cash flow in the supply chain management
The basic fundamental level of supply chain management (SCM) is managing the flow of products or services, from the procurement of raw materials to the delivery of the product at its final destination. And what makes the overall process efficient is the seamless transactions.
Cash flow in the supply chain defines the schedule of payments due to the supplier vs the schedule of payments received from the customers or other revenue sources. Having the cash flow is one thing, but managing that cash flow is another. With effective management, companies can stay prepared when times get tough as there will be processes to put in place. This can help prevent any tough times from emerging in the first place. Some of these situations could be; when a supplier doesn’t perform, errors in forecasting, disruptions, technology issues and many more.
Below are some best practices that will help companies to manage cash flow in supply chain management.
To Have a Freight Audit and Payment Service
It is necessary to plan the finances of the business to manage cash flow accurately. A Freight Audit and Payment (FAP) system ensures whether the actual freight invoice matches what the organization agreed at the time of shipment.
Without a FAP service, payments are processed manually, which is time-consuming and might cause a higher risk of error, resulting in overpayments. Not only this, but it also increases labor costs for the company while also providing incorrect cost estimates. With the FAP service, companies can calculate costs and give estimates, though it does require leniency in expecting miscalculations.
Reinforce Invoice Payment Process
An improved payment process can be the perfect next step for any company. It is crucial to analyze the timely payments, their frequency, and the key customers. The company also needs to examine how efficiently a payment process works while sending invoices, managing the inventory, and how effective the accounts payable team is.
With emerging technologies, implementing automation software helps collect the company’s information on carriers, invoices, costs, and who needs to know the information. As a result, this analysis helps companies to identify late payments or has made inaccurate payments.
An improved Days Payable Outstanding (DPO)
Improving supply chain finances in today’s climate means extending the time of paying company bills. Having more flexibility when the payments are made, helps the company allocate its money to where it is most needed.
For example, structuring the supply chain DPO allows the company to pay for higher priority needs like payroll, insurance, and licenses. It also assists in transportation when the company can pay for fuel, tires, and repairs.
Transportation Spend Management (TSM)
It is yet another best way for a company to manage its cash flow. Transportation Spend Management can help companies gain complete visibility over their transportation routes and costs while saving money and gaining cash flow. It is about building the company from using only Freight Audit and Payment to becoming proactive in transportation difficulties and gaining control over the growth and finances of the company.
With TSM, companies can wrap all these solutions into one by strengthening the carrier relationships, having strong communication and an efficient payment system. TSM contributes toward more visibility and solutions as it examines a holistic view of the data.
Re-Visit Capital Expenditure Decisions
Not surprisingly, many companies have deferred capital expenditures in the first half of 2020. Many are seeing new opportunities as buying behavior shifts.
Automation has become a popular category of investment as businesses have recognized the strategic value of technology and its role as an enabler of agility and resilience. For effective cash flow management, companies require real-time analysis tools that can automate and streamline the process of extracting data from multiple source systems, formatting and analyzing that data, and sensibly presenting the resulting information. Many are now choosing to accelerate investments in tools that eliminate manual processes, increase accuracy, and shorten the time required to produce meaningful insights from operational data.
The Bottom line
From building stronger relationships to implementing new technology, there are several ways companies can optimize and automate their cash flow to improve supply chains. As a company’s procurement process has a huge impact on cash flow, taking a strategic approach in the areas mentioned above will greatly improve the company’s financial health. Hence with effective cash flow management, businesses can protect themselves during a period of crisis where supply chain risk exists.