February 6, 2024 Overcome Market Fluctuations With These Cash Flow Tips

Manufacturers can strengthen their position during market fluctuation by using these strategies to manage cash flow.

By Brian Geen – VP, Relationship Manager, Enterprise Bank & Trust, Member FDIC

Manufacturers continue to face 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.

The good news is that despite widespread market fluctuations, demand remains high for many manufacturers. However, at the same time, many of these companies are being asked to extend accounts receivable terms or are simply seeing slower payments from customers they rely on. As a result, companies are closely watching their debtor payment patterns to prepare for growing instances of extended terms.

From trends related to productivity, supply chain uncertainty, logistics and sales, manufacturers are seeking strategies to help navigate market factors that influence their business’s financial position. Whether you’re managing capital or optimizing cash, the most important focus moving forward is to develop both a short- and long-term cash management plan for your business.

Assessing Your Company’s Current Financial Position

To optimize, assess and fully understand your company’s cash position and needs, begin by taking the following steps:

• Analyze customer payment history and vendor costs to create a well-rounded budget that allows you to optimize your cash flow.
• Evaluate your customer and supplier bases: determine which customers are impacting your cash flow, evaluate suppliers and discuss potential discounts.
• Proactively communicate with customers to avoid accounts receivable surprises.
• Inquire about possible extended accounts payable terms and understand their impact on your cash position.
• Proactively communicate with your banker and other stakeholders, preventing surprises and enabling potential rescheduling of debt or alternative financing sources.
• Evaluate how new technologies can help you increase efficiency and  margins.
• Change your own terms for receivables for payment upfront or consider requiring a deposit upfront for custom or long-term orders.
• Communicate with vendors and suppliers to assess the status of your supply chain.
• Prepare for supply chain shifts that could require identifying alternative suppliers.

In particular, the rise of new digital technologies makes it easier than ever for manufacturers to manage cash and capital. Automated warehouses are speeding up deliveries while cutting labor costs, which makes inventory liquidation easier. 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.

Take Steps to Improve Preparedness

To focus on capturing all of your company’s financing sources, free up your cash and help prevent surprises as you navigate through periods of market instability, plan on working extensively with your team of advisors to explore your company’s operation in depth. Recommendations include:

1. Take account of the cybersecurity threats your company and employees are exposed to 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. Becoming more mindful of the evolving cybersecurity landscape will be critical for the foreseeable future.
2. Explore every possibility of making your supply chain more resilient, including diversification and risk reduction strategies. This requires ongoing supply and demand analyses, including risk assessments and evaluating your base of suppliers and channels. 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 in order 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 your options concerning debt refinancing.
5. Take proactive measures to protect your accounts receivable. This will involve a thorough exploration of the tools and models you currently have in place to develop new cash, revenue and cost models. Streamlining processes will help you get paid faster and save you 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

To protect your business from the unexpected, consider how a stronger cash outlook may better your company’s position throughout periods of instability and beyond. Taking a comprehensive approach to both short- and long-term cash management will help you identify opportunities, avoid pitfalls and elevate your manufacturing operation’s resiliency.

Brian Geen serves as VP, Relationship Manager at Enterprise Bank & Trust. He provides financial expertise for business clients, including manufacturers, distributors and service providers.

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