Businesses must not stick with tried and trusted processes to get a grip on cashflow. These days, there are more options. Image Credit: Shutterstock

With cashflow management affecting the long-term financial health of any organisation, it must be treated as a significant priority. Regardless of the size of your organisation, optimizing your procurement processes will give you better odds at consistently achieving positive cashflow levels.

These steps can help you get there:

Managing inventory

Excess inventory will negatively impact cashflow management, lead to your organisation being left with out-of-season or expired stock, and result in significant waste, unnecessary storage, and insurance costs. However, insufficient stock can lead to missed sales and unhappy customers who look elsewhere.

Select departments should collaborate accordingly to determine optimal stock requirements and decide on standard rules for effectively managing inventory. Investing in a procurement automation solution can help with this.

Choosing suppliers

While it’s tempting to select suppliers who offer the cheapest price, it is essential to avoid compromising product quality or additional services associated with them. This includes aspects like delivery time, as waiting too long to receive goods without them being a factor in your planning will also negatively affect your cash flow.

Be wary of minimum and maximum order quantities; these may initially provide considerable savings but will typically require a greater cash outlay and may leave you at risk of having too much stock in your inventory.

Maintain a strong working relationship with your suppliers and continuously monitor their performance. Healthy and trusting supplier relationships are essential for flexible payment terms, consistent quality, and on-time delivery.

Data Analytics and KPIs

Analytics will enable you to compare budgets with spending in real-time, determine consolidation opportunities in your supply chain, and reach more strategic decision-making to arrange short and long-term spending.

It will also help you ensure teams follow internal practices. Internal performance KPIs can track metrics like the percentage of invoices paid on time and correct three-way matches. Without data, businesses will struggle to use the right KPIs to measure and adjust every part of the procurement ecosystem.

Negotiate early payment discounts

Procurement teams and vendors often have different agendas when it comes to cashflow management. Procurement teams want to hold onto money for as long as possible, while vendors want to speed up the customer payment process; the earlier, the better.

Negotiating early payment discounts with suppliers and using an automated accounts payable tool can help organisations quicken their invoice lifecycle and source early payment discounts more regularly with savings ranging from thousands to even millions.

Dynamic discount management

DDM works off supply and demand to control the price that customers pay. DDM solutions help to show every possible savings opportunity to enable buyers to see discount terms and approaching due dates at any time.

With static early payment discounts, costs, and dates are predetermined and agreed upon. However, with DDM, buyers and suppliers can communicate how and when discounts are offered and accepted. Such solutions provide vendors with better insight into their invoice statuses, enhance their ability to offer customised discount rates for specific goods, and can be used to bolster supply chain efficiency.

Automated invoice processing

Manually processing invoices are time-consuming and costly. In fact, processing a single invoice can cost nearly $16 and take up to 45 days to process.

Automation solutions like Robotic Process Automation (RPA) can help businesses reduce invoice processing costs and lifecycles, save money, and improve cash flow management.

Opt for e-payments

Cheques have traditionally been the most common type of payment between businesses and vendors, but by 2025, 80 per cent of buyer-supplier transactions are set to be made digitally.

Organisations in the B2B space should make use of electronic payment tools like purchasing cards (P-Cards) and automated clearing house (ACH) to achieve greater efficiency, control cashflow management, and allow for saving in the long run.

P-Cards are easy to implement and help capture discounts, with some P-Cards allowing this to happen on the same day. They also eliminate costs linked with printing and mailing cheques. Instead of paying a supplier within a 30-day timeframe, businesses can keep capital for longer to explore more options on how to conduct their operations.

On the other hand, ACH transactions are a significantly cheaper alternative that typically costs the originator 29 cents, in comparison to the usual $3 check payment cost. Over the past two years, ACH B2B payments have gone up by 33.2 per cent and in 2021, the ACH Network, which allows businesses to collect single-entry or recurring payments electronically, experienced impressive growth with 29.1 billion payments valued at $72.6 trillion.

Invest in comprehensive procurement solutions

Investing in other digital technologies like AI and more advanced analytics can significantly improve cashflow, and trigger a full-blown digital transformation strategy. Some of the many features of dedicated procurement solutions include a centralized and cloud-based mobile-friendly platform, assistance with electronic invoicing and automatic payments based on specific criteria, and automatic three-way matching to avoid expensive mistakes or issues that can affect supplier relationships.

While these solutions may initially seem costly, moving to a digital procurement platform can improve cashflow management and lead to significant savings in the long run, while reducing waste, costs, and environmental issues that come with paper-based processes.