Manufacturing Cash Flow Management

It is important to have tight management of cash and insight into variables that affect your manufacturing business liquidity in today’s business climate. Cash management in a manufacturing environment is about maintaining a positive balance between cash intake and cash output. Manufactures face recurring and new obstacles to maintaining and maximizing cash flows, including seasonal sales trends, workforce shortages, supply delays, shifting demand, and even fraud and embezzlement. This article focuses on managing cash flow and critical information for daily and strategic cash flow decisions.

Understanding the cash flow cycle and recognizing the patterns is a critical first step in cash flow management. Consider seasonal sales trends and their effects on cash needed to purchase additional supplies and the future benefit of additional cash receipts. By monitoring cash regularly, if not daily patterns and predictability can be detected. Answering the following questions will help forecast cash flow. When are collections received? When are payments due? When are annual or quarterly payments due, such as insurance and property taxes? Wages are one of the most significant expenses in many companies. Understanding the pay cycle is a necessity, and plan for any annual bonuses and capital improvements.

There is always a lag in receiving collections after inventory is produced and ultimately shipped, depending on the specific industry in which one operates. It is of the utmost importance to understand this process to estimate your collections appropriately. Work with an internal team or third-party billing department to ensure invoices are being billed timely and any outstanding receivables are reviewed for collection. Offering to take payment directly as ACH (Automated Clearing House) payments decrease the wait time and creates quicker cash inflow. In some cases, it may make sense to sell receivables or Accounts Receivable Factoring to a third party who purchases the businesses receivables for a percentage of the total. The business may receive a small percentage after the collection, depending on the contract.

Many factions of the manufacturing sector have experienced significant delays in purchasing inputs and exceedingly high demand for products, which has created a new set of obstacles to navigate. It may make sense to stockpile key nonperishable inputs in the current environment, even if there are negative cash flow consequences. This cash outflow can be offset using credit resources. In the face of increasing demand, companies may have the flexibility to be more selective in pricing, customers, and invoicing terms to maximize the revenue and cash flow streams of products. Many have experienced historically strong years and are in positions of strength to obtain new lines of credit with historically low rates. This is a long-term cash flow planning strategy to prepare for potentially leaner years to come.

Managing cash flow is an essential strategy for any manufacture, large or small. The ability to respond to cash flow challenges helps achieve cost control and impacts the business’s success. Utilizing technology can improve efficiency by having data readily available to allow quick response to changing needs of the organization. For example, sophisticated accounting systems have a dashboard and analytic capabilities that supply real-time cash, banking, and expense disbursement information.

Planning is the key to the management of cash. Seek out the experts, work with an advisor or accountant to create projections, and update them as circumstances change. Maner Costerisan specialized experts provide manufacturing businesses a range of accounting and financial management solutions. From CFO-level to part-time bookkeeping needs, our advisors can eliminate headaches and pain points in the financial sector of the business while supplying critical information on a timely basis to help leaders make decisions.