Efficient Cash Flow is Essential for Wholesale Distribution Companies
Wholesale distribution businesses face a lot of challenges, particularly with the current supply chain issues that have disrupted the industry. Companies are often focused on supply chain optimization, product offerings, and customer service. Improving cash flow isn’t always top of mind. However, wholesalers that stay on top of their accounts receivable find it easier to adapt and succeed in a highly competitive distribution market. With a strong cash position and sufficient working capital, companies have the buying power they need to stock up on inventory and meet growing customer demands.
Wholesale distribution business owners take on a lot of risk for what is often a small profit margin. Wholesale distributors are the middlemen between manufacturers and the end consumer. To survive in a highly competitive industry, they need to carry a wide selection and a large volume of inventory and offer those goods at competitive prices. With this business model, owners leave themselves vulnerable when the economic waters get choppy. A combination of too much inventory and lower sales in a recessionary environment is a recipe for poor cash flow, which puts their business in a vulnerable position. Now is the time to take a closer look at the last step in your revenue cycle, your receivables.
Here are some strategies your wholesale distribution company can implement to boost your bottom line and free up cash flow:
Take a proactive approach to collections
Taking a proactive approach to collections involves actively managing and monitoring the accounts receivable process to ensure that outstanding invoices are paid on time.
The following steps can be taken to ensure your team is on top of your receivables:
Establish clear payment terms with your customers and communicate this frequently. This can include setting due dates, offering discounts for early payment, and being specific about the consequences of paying late.
Continuously monitor your accounts receivable to spot potential issues early on to get ahead of them and promptly address them.
Regularly communicate with your customers to build stronger relationships and reduce the likelihood of late payments. Send reminders before payment is due.
Use technology to streamline collections. Technology can help automate and streamline collections processes, making it easier to manage outstanding invoices and follow up with customers. This can include automated payment reminders, electronic invoicing, and online payment options.
Prioritize your collections efforts based on the age of the invoice, size of the outstanding balance, and the customer’s payment history. Focus your resources where there is the most risk.
Taking these steps can help improve cash flow, minimize bad debt, and strengthen customer relationships.
Start Planning More Strategically with Accurate Cash Forecasting
In today’s economic environment, where cash is king, interest rates are high, and there are opportunities to expand your business through acquisitions, it is imperative to understand when your customers are going to pay. Accurate cash forecasting allows wholesale distribution companies to anticipate future cash inflows and outflows. This helps them avoid cash shortages, minimize the need for expensive short-term financing, identify potential cash flow risks, and offer greater transparency into the company's financial position. A company’s leadership can use this information to make better business decisions and position the company for long-term success and growth.
Invest in a Collections Automation Tool
Downloading aging reports from your ERP, manually typing and sending collections emails, downloading invoices and attaching them to emails, and keeping track of customer notes in Excel are no longer the best ways to get cash in the door. Wholesale distribution companies that invest in a cash performance management tool like Tesorio to automate their collections are setting themselves up for success.
The benefits of implementing a collections tool go beyond automation. Other benefits include:
Time Savings: Collections automation tools significantly reduce the time required to manage accounts receivable. Automation frees up time for your staff to focus on other areas of the business.
Improved Cash Flow: By automating the collections process, wholesale distribution companies can improve their cash flow by ensuring that outstanding invoices are paid on time. This reduces the number of invoices that go unpaid and turn into bad debts.
Increased Accuracy: Automation tools like Tesorio help eliminate errors that are common in manual collection processes, such as inputting incorrect invoice amounts or sending reminders to the wrong customer.
Improved Customer Relationships: Getting out in front of customers early on about their invoices reduces the number of awkward conversations that occur when payments are late. This is an integral part of maintaining a smooth customer experience.
Access to Real-time Data: Collections automation tools provide real-time data on accounts receivable, allowing wholesale distribution companies to make better-informed decisions and identify potential problems before they arise.
Overall, investing in a collections automation tool can help wholesale distribution companies become more efficient, reduce mistakes, and improve their cash flow, all of which can help them stay competitive in today's fast-paced business environment.
Ready to boost your wholesale distribution business? Get in touch with Tesorio today.