Improving cash flow can help manufacturers better endure market fluctuations 

A strategic approach to creating a stronger financial position through improved cash flow can better a manufacturer’s ability to navigate periods of economic instability. Both short- and long-term cash management approaches help identify opportunities, avoid pitfalls, and elevate your manufacturing operation’s resiliency.  

This has become increasingly important with manufacturers facing a rapidly evolving and increasingly competitive market environment. Possible regulatory changes, political uncertainty, supply chain fluctuations and elevated labor costs are just the tip of the iceberg.  

Companies must be ready to endure challenges, such as periods of lower sales or sudden changes in demand for products. 

Demand remains high for many manufacturers but, at the same time, many of these companies are being asked to extend accounts receivable terms or are encountering slower payments from previously reliable customers. As a result, companies are closely watching their debtor payment patterns to prepare for growing instances of lengthier terms. 

Brian Green Enterprise Bank & Trust
Brian Green Enterprise Bank & Trust

Whether you’re managing capital or optimizing cash, the most important focus moving forward is to develop both a short- and a long-term plan.  

Optimizing, assessing, and fully understanding your company’s cash position and needs takes time and attention to detail. In addition to better defining the full picture of a customer and supplier base, businesses have an opportunity to analyze customer payment history and vendor costs to create a well-rounded budget.  

In doing so, you can determine which businesses in your supply chain truly impact cash flow and better communicate with suppliers and discuss potential discounts, while also identifying alternative suppliers in emergency scenarios.  

Perhaps most importantly, business leaders should adapt strategies to facilitate proactive communication with a team of financial advisors and key stakeholders to develop a strategy for handling difficult conversations with customers and suppliers on possible extended accounts payable terms. This helps both improve cash flow and avoid challenging surprises.  

Of course, you must always consider your competitive threats and whether it makes sense to start planning for this type of innovation, especially when market share is up for grabs and having cash flow can be your competitive advantage.  

To focus on capturing all your company’s financing sources, free up cash and plan to work extensively with the appropriate advisors to explore your company’s operation in depth. Recommendations include:  

  1. Take account of cybersecurity threats to operations and ensure proper training and procedures are in place. Manufacturing remains one of the most vulnerable industries and it will likely continue to be a target for phishing, ransomware, intellectual property theft and supply chain attacks.
  2. Explore every opportunity to make your supply chain more resilient, including diversification and risk reduction strategies. This requires ongoing supply and demand analyses, including risk assessments. Diversification within a business and its supply chain can help make profits less vulnerable to industry-specific changes.
  3. As production fluctuates, determine which investments should be reconsidered for additional funding. Take the appropriate steps for your business and identify which capabilities you will need to build to adapt and offset long-term market intractability.
  4. Assess how profitability, loans, revolving credit, and cash flow reserves support ongoing operations in an unstable market. Identify all potential sources of cash and consider debt refinancing options.
  5. Take proactive measures to protect accounts receivable. This will involve a thorough exploration of the tools and models currently in place to develop new cash, revenue, and cost models. Streamlining processes will help you get paid faster and save money.
  6. Evaluate how you fund investments in research and development to bring new products to market. Work with your team to analyze and determine the best, safest course of action to secure funds and minimize associated risks. 

Brian Geen serves as VP, Relationship Manager at Enterprise Bank & Trust, Member FDIC. He provides financial expertise for business clients, including manufacturers, distributors, and service providers. Enterprise Financial Services Corp with approximately $14.5 billion in assets, is a financial holding company headquartered in Clayton, Missouri. Enterprise Bank & Trust operates more than 40 branch offices in Arizona, California, Florida, Kansas, Missouri, Nevada and New Mexico, and SBA loan and deposit production offices throughout the country.