Cash Inflows and Outflows: Is Your Company Vulnerable?


The macroeconomic disruptions of 2020 were unprecedented and widespread. Even if your company wasn’t seriously affected over the last couple of years, in today's dynamic environment, understanding and managing your company's cash flow vulnerabilities remain critical. It’s vitally important to understand your company’s particular vulnerabilities to enhance your business's resilience in the face of ongoing uncertainties.

Cash Inflows

Looking for potential disruptions to cash inflows gives you the opportunity to proactively mitigate their impact on your overall business. Start by reviewing these sales trends:

  • Percentage generated by customer, product, service, and division: An over-reliance on a single sales source is highly problematic, especially in a weak or uncertain economy. It can be remedied by diversifying your business plan.
  • Customer purchase levels: A downward change in customer ordering patterns could mean they’re struggling or possibly engaging with your competitors. By reaching out to them early, you can determine what’s happening and either entice them back with greater discounts or more benefits, or at least better prepare for the future.
  • Payment timeliness: If your business has an unacceptably high DSO, consider adjusting your terms to require deposits, offering discounts that encourage quick payment, automating your accounts receivable processes and dunning campaigns to decrease collection delays.
  • Customer retention: It costs less to sell to existing customers, so signs of significant attrition call for reprioritizing customer service and relationship management.
  • Customer acquisition: If data shows that you’re not attracting new customers at expected rates, try creating fresh marketing campaigns, developing more offerings, and/or expanding into new geographic markets.

There may be other factors that are uniquely relevant to your business, but the point is to understand what is happening to your customers, your markets, and your business and how it is or could impact cash flow. Examining these types of issues through the lens of cash flow enables a deeper understanding of real business implications and enables better prioritization in terms of what must be addressed first.

Your business also relies on credit for regular cash influxes, which depends on two key factors:

  1. Lending policies: Bank underwriting standards tend to tighten during weak economies, so it’s important to cultivate strong relationships with current and prospective creditors.
  2. Your creditworthiness: Weak financials impact how much and if banks will lend to your business. AI-embedded cash flow prediction software can help you make smarter decisions.

Returns on your investments or the sale of company assets can also produce cash. Timing the latter to offset any anticipated reductions in other cash inflows can ensure consistent cash flow management.

Outgoing Cash

Analyzing where you spend money also reveals potential vulnerabilities:

  • Vendor criticality: You likely pay the most to vendors that provide critical products or services. Do you have a backup plan if their business is impacted and they can’t supply you?
  • Price trends: Vendors routinely raise prices, but unexpected spikes could suggest a deeper problem with the supply chain that needs to be monitored.
  • Relationship duration: Complacency is expensive. Have you compared vendor prices lately?
  • Expense types: Accurate expense categorization helps you direct resources to essential items and save on non-essential costs.
  • Debt financing: How much interest are you paying? Are balloon payments coming due? It might be time to negotiate new credit terms.
  • Capital expenditures: Right-timing purchases helps ensure cash flow consistency.

Let Your Cash Flow

This kind of financial analysis is necessary for overall company stability because it gives you a comprehensive, real-time picture of how money is coming in and going out of your company. Once you identify vulnerabilities, your business can prioritize, adjust course, and minimize any financial fallout.

Speak to a cash flow expert to learn how Tesorio can help you improve your cash flow efficiency and vulnerability awareness so that your business has the resiliency to face future disruptions.