Brian Weisbarth, CPA, CFE is a senior manager at Corrigan Krause.
With interest rates continually on the rise, borrowed funds are becoming more expensive for businesses. Being able to improve internal cash flow can help a manufacturing company reduce its need for borrowed funds.
Here are a few ideas to help improve cash flow:
Sell excess inventory – if a company has slow moving inventory, those are invested dollars sitting in your warehouse; materials, labor costs and packaging. Discounting the price or finding a new channel to sell that inventory will help turn them back into dollars in the bank.
Manage receivables and payables – Many small businesses often fall victim to financing their larger customers by accepting longer payment terms just to keep the relationship and business. Be proactive in following up with those customers and make sure they pay on their due date. Consider accepting credit card payments to speed up the collection of cash. On the payables side, ask vendors if there are any discounts available for early payment. While this will hurt short term cash flow the long term benefits to cash flow will help. See if vendors will accept credit card payments. This will help extend the payment cycle of an invoice which will help manage cash flow. Consider using a credit card that offers a reward, like travel miles or cash back.
Reduce overhead – The manufacturing plant of the future is one that is working smarter, not harder. Review machine and product setups to ensure all inputs; material, labor and facilities are setup to run efficiently during a shift. This can help reduce costs to operate the plant and machinery, reduce potential costly overtime and wasted material. Review the plant workflow. Determine if machines can be arranged to take up less floor space; maybe you can reduce square footage and cut back on rent and facility costs.
These are a few ways to help improve cash flow for manufacturers, by creating more operational efficiencies and managing receivables and payables improvements to cash flow will follow.