How to Solve the High Sales - Low Cash Flow Dilemma

Solving the High Sales – Low Cash Flow Dilemma

For entrepreneurs, startups and small business, simply generating more sales might not be the answer. Successful businesses can still fail! Find out how to improve low cash flow to make your organization more sustainable.

Why low cash flow – not low sales – is the common lament of entrepreneurs

An article titled The Irony of Successful Sales Growth describes one of the challenges faced most often by small business owners and entrepreneurs as low cash flow. When an organization experiences low cash flow along with limited reserves and lack of resources (such as lack of investors or inability to obtain a bank loan), the seriousness of the situation can quickly become acute.

Many businesses that are successful – in that they are growing and increasing sales – can even create their own unique recipe for low cash flow when the need to purchase additional inventory, hire staff, or increasing operating expenses outpace incoming cash flow. This can be especially difficult for B2B sellers who often extend especially favorable terms to customers as a competitive advantage.

The entrepreneur’s lament is one of the great ironies of the marketplace;

a small business in danger of failure as a result of extreme success.”

(Jim Blasingame, The Irony of Successful Sales Growth)

But the challenges presented by low cash flow are not only limited to organizations like (B2B) business-to-business companies that sell to customers on terms. Retailers and service organizations also face the challenge of making hefty investments in inventories before offsetting sales occur. If a retail organization’s projections about consumer demand do not match up with actual sales, they too may find themselves in a cash crunch.

Perhaps the best news for business owners trying to solve the challenge of low cash flow is that it is a common challenge, and there are many ways for a business to improve its cash flow. We previously shared an article with ten ways to maximize business cash flow that might also interest you further.

Here are some of the solutions for managing the challenge of low cash (or slow cash flow):

1. Plan for growth so that you know where the money and resources needed for fast reinvestment will come from.

2. Avoid use of operating cash for non-operating expenses (such as purchasing capital equipment).

3. Closely monitor accounts payable and accounts receivable

4. Understand the relationship between Accounts Receivable Days (how many days it takes customers to pay) and Accounts Payable Days (how long you have to pay vendors).

Ideally, you will have the option to work with vendors who will extend terms that make it possible for customer payments to come in before supplier invoices become due; however, that is not always going to be the case.

You may be able to speed up customer payments by offering discounts to customers who pay on delivery or who pay very quickly, require customers to make partial payments or deposits up front and conduct more thorough due diligence checks before extending customer credit. Plus, you can spend more time and money on collections efforts rather than taking a more passive approach to unpaid invoices.

You might also like: Top 10 Reasons B2B Startups Might Fail

Stop chasing customer payments – factor receivables for fast access to working capital

B2B organizations that invoice customers upon delivery of goods or completion of services may be able to immediately improve cash flow and better manage receivables by factoring – or selling – customer invoices to a factoring company.

When a client factors (or sells) an accounts receivable invoice to us, they receive funding for up to 95 percent of the face amount of the invoice for a small fee, called a factoring fee, within 1-2 business days. In this way they can get access to the working capital they need to run and grow their operations long before their customer is required to pay.

Since factoring clients do not have to wait for customers to pay, they can reinvest in growing their business more quickly. They can also extend generous payment terms to their customers, which could create a competitive advantage.

Get a free, no obligation quote for invoice factoring or request more information about the invoice factoring process.

  • Average monthly sales or amount of invoice to factor
Supply Chain Business Innovation – 5 Ways to Grow

5 Ways to Innovate a Supply Chain Business

Every supply chain business must innovate in order to keep customers interested and add new customers to the fold. Here are five ways distributors and manufacturers can innovate and improve in order to grow.

Innovation Helps Manufacturers and Distributors Grow

Companies that fail to innovate can quickly become obsolete, and that applies to supply chain organizations, too. But introducing new products is not the only way to get the attention of customers and grow. Rather than simply waiting for growth to occur as a natural outcome of an improving economy, supply chain manufacturers and distributors should actively look for ways to innovate if they want to grow more quickly.

5 Ways Manufacturers and Distributors Can Innovate to Grow a Supply Chain Business More Quickly

Introduce product innovations and evolutions

Manufacturers that are committed to internal continuous improvement are far more likely to be able to introduce new products more often as well as upgrades and improvements that lead to additional sales. Likewise, distributors that source upgraded or improved options for their customers will have more opportunities to resell to existing customers and bring new accounts on board.

Innovate the account management process

Like consumers, more and more B2B buyers expect to be able to reach out to a knowledgeable sales or account professional online, day or night, even outside of a company’s regular hours of operation. These same buyers also expect that supply chain organizations will facilitate the means for them to order online, track shipments and progress, set up automatic re-ordering, pay invoices and otherwise manage their accounts online, without ever speaking to a company representative if that is their preference.

Introducing account management innovations today’s customers have come to rely on can mean the difference in landing new accounts and generating additional sales as well as creating customer dependencies that make it less likely they will shop around or defect.

Innovate manufacturer and distributor delivery methods

Perhaps more so than any other distributor, supply chain giants Walmart and Amazon have modeled the pursuit of constant innovations when it comes to manufacturer and distributor delivery methods. Like consumers, B2B buyers are coming to expect for shipping costs to be included in pricing up front, and for that delivery to occur quickly.

While you may not be in a position to scramble an army of drones or facilitate same-day or next-day delivery, anything you can do to cut costs and decrease time customers spend waiting for their orders can help you compete.

Innovate your marketing approach

What words would you use to describe your marketing copy and channels? When it comes to marketing, there is no reason your marketing cannot be innovative, engaging, entertaining and intriguing – even – and especially – if your products aren’t. Innovating your marketing approach through:

  • publicity stunts
  • social and cultural influencers
  • social media and press mentions
  • wins in ‘best of’ contests
  • revitalizing your brand’s visual image and taglines
  • telling customers about your brand’s values and corporate social responsibility programs

–  are all examples of ways to infuse new life into your marketing.

Ensuring that your brand is ‘alive and well’ in digital media channels (email marketing, social media, blogging, etc.) will better help you reach the new generations of Millennial and Gen-Z B2B buyers that are replacing retiring Baby Boomers.

As a supply chain business, you can also help create demand from your buyers by stimulating demand directly among their customers. We recently published an article that describes four ways distributors and manufacturers can generate demand by marketing to consumers and end-users, rather than simply marketing to their own buyers.

Innovate the company culture

“It is what it is,” is a phrase that is often uttered along with a shrug of the shoulders, indicating a fait accompli; or, in other words, a thing that has already happened or been decided before those affected hear about it, leaving them with no option but to accept. In some ways, company culture is “what it is,” in that it cannot be faked. But just because it cannot be faked, does not mean that it cannot be improved.

Innovations and investments made to improve your corporate culture, when genuine, will often produce impacts far greater than improving employee satisfaction. They can improve hiring outcomes, reduce employee turnover, and increase employee engagement, all of which have a direct impact on improving sales and decreasing costs. Marks for customer satisfaction, loyalty and referrals are also much higher for brands that are known for their innovative corporate cultures.

Innovating within your manufacturing or distribution company may allow you to serve new customers; but that’s not all.

Innovations also send a clear message to existing customers that your business is committed to making continual improvements for the future. It creates a spirit of intrigue among your customers about what might be coming next. They will be more likely to see your supply chain business as a valuable partner in the supply chain, and as a result, offer you additional suggestions that can help you innovate more effectively and quickly.

Taking proactive steps to innovate can even put you in the driver’s seat when it comes to change. As a manufacturer or distributor, leading the way by innovating puts you in the position of being a leader, rather than a supply chain business that must scramble to keep up with the companies that are driving change in the industry. As Steve Jobs so wisely said, “Innovation distinguishes between a leader and a follower.”

You might also like: Supply Chain Finance

6 Keys for Supply Chain Marketing Plan Success

Supply Chain Marketing – 6 Traits of Successful Marketing Plans

Bring these six supply chain marketing strategies to bear in developing a supply chain marketing plan for a manufacturing or distribution business.

While your plans are likely to include both short term marketing strategies and long range strategic goals, the values that guide your plan should not change. We came up with six traits that characterize successful supply chain marketing plans. Keep these principles in mind as you evaluate strategies that can help with growing a manufacturing or distribution business.

6 Keys for Supply Chain Marketing Plan Success

S – Service

Unless you have an exclusive product or are the only distributor of a product for which there are no real substitutes, it’s likely that your products – in and of themselves – are not the most important reason that people should choose to do business with you.

A supply chain marketing plan that revolves around the idea of service – the effective solutions or unique added value that your business or sales professionals are able to offer your customers – is more likely to produce compelling calls to action, marketing copy and advertising.

U – Urgency

While the supply chain industry is constantly evolving and products and services are always entering and leaving the marketplace, your particular area of manufacturing or distribution expertise may be one that rarely changes, evolves or produces innovation.

Whether your business falls at one end of the spectrum or the other, your marketing plan must create a sense of urgency among your buyers in order to stimulate more sales. If your customers never have anything to lose by waiting to buy from you, there is little motivation for them to take action more quickly.

P – Persistence

Sales representatives have to make an average of 6 contacts to sell a product or service (33 Cold Calling Statistics). One email, one phone call, one networking event, one tradeshow — it is going to take more than one attempt to make contact with your decision makers.

Make sure that your supply chain marketing plan is not reliant on campaigns that need to hit the target on the first try. Plan for marketing campaigns to be played out over time and across multiple marketing channels.

P – Proactive

How well do you understand the buying cycle or customer journey of your supply chain business? The extent to which you understand what occurs at each phase of the buying cycle and design customer experiences that will help prospects move to the next phase of the customer journey will affect the bottom line when it comes to conversions.

If your supply chain marketing plan does not move prospects through the buying cycle effectively, you will have to generate many, many more leads to fill the sales funnel in order to meet your revenue requirements or grow your manufacturing or distribution business. Refining the buying journey at every step is essential to increased conversions and ROI (return on investment).

L – Leverage

The word leverage means to, “use (something) to maximum advantage.” As you brainstorm potential tactics, calls to action, advertising and marketing campaigns, those areas where your business has competitive advantages and supremacy should be used to your organization’s maximum advantage.

Rather than trying to compete in areas where your competitors have already made a name for themselves, look for a niche or value-add that creates a competitive advantage that will be persuasive and meaningful to members of your target audiences. Do not assume that prospects and customers understand the benefits of working with you.

Y – Your One Thing

Your “one thing” is sometimes called a USP (unique selling proposition) or UVP (unique value proposition). In terms of your supply chain marketing plan, your one thing is the single-most compelling reason people should choose to do business with your organization instead of your competitors.

Your ‘one thing’ might be something that sets your products apart. It could also be something unique to your manufacturing process, your corporate values, or even the overarching vision of your business.

Writing a supply chain marketing plan is no small task, especially when it comes to the marketing strategies you hope will help you grow your manufacturing or distribution business to the next level. We created an acronym from the word “supply” with six important things to remember as you develop the marketing strategies and tactics you plan to put into action.

Although the supply chain has benefited as the US economy continues growing in the post-recession era, it is worth noting that logistics, manufacturers and distributors that have a strong supply chain marketing plan in place stand to benefit most. Now is the time to write a new marketing plan or revisit your organization’s strategic long range plan in order to identify areas of opportunity, carve out competitive advantages and strengthen your business.

You might also like: Supply Chain Finance

 

Don't let late payments hurt your business

Don’t Let Late Payments Hurt Your Business

Take control of your cash flow so that customers’ late payments don’t have the ability to slow or stall your business.

Is money stuck in your accounts receivable due to late payments slowing down your business?

Finance news site PYMNTS.com reports that on any given day in the US, B2B companies are sitting on as much as $3.1T (yes, TRILLION!) in accounts receivables. Larger companies have two advantages when it comes to slow-paying customers than their SMB (small and mid-size business) competitors do.

Amount tied up in unpaid customer invoices every day

  1. Relationship Power

Big companies are often the “power” player in the relationship, in the position of dictating payment terms to their customers. Conversely, SMB’s may have to play by the rules of their customers and may not feel as though they want to risk damaging a relationship by hounding a customer for payment.

  1. Financial Power

Large companies generally have deeper financial reserves than their smaller counterparts. Late payments from customers can make it difficult for small and mid-sized businesses to make payroll or meet other financial obligations, such as taxes, lease and mortgage payments, operating expenses, marketing and advertising, taking on new customers or bigger accounts, and so on.

SMBs with late payments also pay their own suppliers late

In fact, a PYMNTS study found that 28 percent of businesses impacted by late payments from their customers also then end up paying their own suppliers late.

Are you running your business or is slow cash flow calling the shots?

An Inc.com article lists signs that indicate slow cash flow is stalling or stopping business growth and operations, ultimately resulting in a lack of liquidity – insufficient on-hand working capital needed to meet payroll, expenses and other operational costs. Two of these symptoms go directly to the heart of outstanding customer invoices:

  • Late payments – overdue invoices
  • Slow collections

When money isn’t coming in as scheduled because of late payments from customers, your ability to meet payroll and cover your own business expenses is hampered. Even if you are scraping by on expenses, you may be unable to take actions to grow your business, such as taking on bigger accounts or new customers while you are waiting for customers to submit payments on jobs you have already completed.

If your business struggles – occasionally or frequently – to meet expenses or lacks working capital needed to grow, slow cash flow is negatively impacting your operations and limiting your control. You can take control of your cash flow by expediting cash flow, whether or not you eliminate the challenge of slow-paying customers.

4 Ways to Speed Up Slow B2B Cash Flow Caused by Late Payments

1. Factor invoices

You can completely eliminate the challenge of late payments by customers by factoring invoices as soon as the first day they are created by factoring them with Corsa Finance. Factoring also benefits your customers in that they can still enjoy generous payment terms and can further protect your company from risk of bad debt if you choose non-recourse factoring.

2. Offer fast-pay discounts

You probably have vendors that offer quick-pay or cash discounts, giving you a price break or account credit if you pay immediately instead of on terms. One thing to consider before offering a quick-pay discount like this to your customers is whether the discount you’re offering would be more than the cost to factor the invoice. If your factoring fee would be lower than the amount you give back in a discount, then factoring could be the smarter financial choice. Your business still gets paid right away and you aren’t leaving as much money on the table.

3. Require large deposits

One of the consequences of invoicing customers on terms after a job has been completed is that your business is often required to pay for supplies, equipment, employees and other expenses long before the revenue attached to that job has been received. If customers are required to put down a deposit, some of that revenue can be matched up to corresponding expenses. However, this doesn’t completely eliminate the issue of the balance of the invoice coming in slowly or late.

4. Invoice in real time

Use technology to generate invoices in real time as soon as a customer has signed off on a job or one of your employees has indicated its completion. Waiting a day or even a few days to invoice customers means days in addition to the length of their payment terms before revenue will come in.

What would you be able to pay for today if you weren’t waiting on customer payments or commissions owed to you?

  • Federal or state taxes
  • Taking on new clients or bigger accounts
  • Business credit card or loan payments
  • Marketing, advertising and other promotions
  • Automobile repairs, gas or maintenance
  • Lease, rent or desk fees
  • Employee or contractor wages
  • Supplies and expenses

Call 866-855-6772 or by email using the form below to find out how we can help you take control of your cash flow to keep your business on a better financial footing.

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Top 10 Reasons B2B Startups Might Fail

Top 10 Reasons B2B Startups Might Fail

There is as much to be learned from failures as there is from success. Find out the most common reasons why B2B startups might fail during the first five years.

10 Areas Where Incompetence and Inexperience Can Cause B2B Startups to Fail

From cash flow to customer terms, unless you’ve run a business before, what you don’t know might hurt your new business. Find out how to protect and strengthen your startup or young business by shoring up knowledge and expertise in these ten areas that account for 75 percent of all young business startup failures.

Unless you have launched a startup or small business of your own, it is hard to describe the feeling of excitement and limitless opportunities that startup owners experience when they first open their doors (whether brick and mortar or virtual.) Equally difficult to describe is the vast disappointment that same small business owner will experience if they are forced to close those doors permanently within a few years (or even months) because their young business is no longer viable.

As alarming as it sounds to say that half of all startups are no longer in business by the five-year mark, it’s not like the five-year mark is magic. In fact, more than seven out of every ten startups will fail within the first ten years. (statisticbrain.com)

The industries with the highest failure rates by year four (when 50 percent of all new young business startups are said to have failed) include:

  • Information – only 37% still in business after 4 years
  • Transportation / Communication / Utilities – only 45% are still in business after 4 years
  • Retail – only 47% are still in business after 4 years
  • Construction – only 47% are still in business after 4 years
  • Manufacturing – only 49% are still in business after 4 years

On the flip side, the industries which have the higher success rates by year four are listed as follows:

  • 58% of Finance / Insurance / Real Estate organizations are still operating after year 4
  • 56% of Education / Health organizations are still operating after year 4
  • 56% of Agriculture organizations are still operating after year 4
  • 55% of Services organizations are still operating after year 4
  • 54% of Wholesale organizations are still operating after year 4

From Startup to Young Business to Out of Business, Top 10 Reasons B2B Startups Might Fail

Statisticbrain.com listed the top ten reasons that a young business might fail under two main categories: incompetence and inexperience. One could make the argument that incompetence occurs largely due to inexperience or lack of knowledge needed to put the right policies into place; but for now let’s stick with their categories and talk a little bit about the most common reasons that startups tend to fail within the first five years.

Top 10 Reasons Startups Fail

Incompetence accounts for 46 percent of small business failures within the first ten years of operation. The specific areas of incompetence that derailed these startups included:

  • emotional pricing
  • living too large
  • not paying taxes
  • no understanding of pricing
  • lack of planning
  • no understanding of financing
  • no experience in record-keeping

As you read through the list, it’s easy to conclude that many of these small business failures could have been prevented if the entrepreneurs had educated themselves in the areas of finance, taxes, record keeping and pricing. What’s more, the problems that result in all seven of these areas directly affect cash flow, which is the lifeblood of any business, of any size.

Inexperience accounts for 30 percent of small business failures occurring within the first ten years of operation. The three specific areas where lack of knowledge and experience resulted in startup failure were:

  • poor credit granting practices (lack of experience in setting the right customer terms)
  • expanding too fast
  • inadequate borrowing

Even more than the previous reasons cited for startup failure within the first decade, these three reasons point back to an inadequate understanding of cash flow management, which, in turn, is just about certain to result in inadequate cash flow needed to sustain a small business.

Cash flow is simply the movement of money into and out of your business. Positive cash flow results when revenues exceed expenses; conversely, negative cash flow occurs when money is going out of a business more rapidly than revenue is coming in. Inc.com lists five ways to improve cash flow (collecting receivables, tightening credit requirements, increasing sales, discounting for early payment and obtaining financing).

However, it’s not always possible to implement some of these suggestions. For instance, if extended customer credit terms are being employed as a competitive advantage, it may not be possible – or even advisable – to demand that customers pay up more quickly.

How to Speed Up B2B Business Cash Flow

Any of the reasons cited for the demise of 76 percent of the small businesses that failed in their first ten years could have been experienced by any type of B2B (business to business) organization. Though some could have been prevented by entrepreneurs educating themselves or working with experts in the areas of planning, financing, record keeping, taxes, etc., some of the problems are more complex.

For instance, a small business might want to require customer payment up front or on delivery but may need to extend more favorable terms to their customers in order to compete with larger, well-funded competitors. Likewise, some small business owners may have a good handle on financing and record-keeping, but that does not ensure cash flow from customer sales will always match up in a timely manner with operating costs, expenses and payables.

That’s where invoice factoring can help. Invoice factoring is a financing tool most B2B organizations who invoice their customers for payment after delivery of goods or performing of services can use to better manage cash flow. Rather than waiting for their customers to pay, they can factor – or sell – a customer’s invoice to an invoice factoring company like Corsa Finance and get payment for the invoice within days – or even hours.

Factoring invoices allows an organization to gain immediate access to the working capital that might otherwise be locked down in their receivable invoices for weeks (or longer). With immediate payment on invoices, cash flow can be maintained at a more consistent level, and revenue can be matched up more closely with correlating operating expenses.

Speed Up Cash Flow by Factoring Invoices Instead of Chasing Customer Payments

Get a free, no-risk quote for invoice factoring:

  • Average monthly sales or amount of invoice to factor