Improved Organizational Alignment for Better Cash Flow

By Steve Fisher, Partner

A well established, family owned manufacturer had a solid, consistent revenue stream and a good profit margin. However, it struggled to manage its payroll and accounts payable, negatively impacting internal and external relationships. We were contacted to see if we could help resolve the problem and offer a solution.

Making payroll and paying vendors on time had become routinely stressful for everyone in the organization going on two years. Often, paying vendors involved wire transfers and requests for extensions. And, despite the solid revenue stream, having the timely cash flow to pay their employees and vendors was getting progressively worse.

Finding the Root Cause

As we worked with this client, we first explained the cash conversion cycle concept to the company and then mapped out the various points in this process, during which the root cause of their problem became apparent. There was an unnecessary delay in invoice processing and, subsequently, delayed client payments.

After working with their team, we learned there was no sense of urgency in sending out invoices to be paid until after their customers received their product. Another part of the problem was a lack of alignment and communication with other departments.

Solutions Implemented

We worked with the company to establish new invoicing procedures supported by better technology and organization alignment. After the staff had been trained and we implemented new procedures, it was only about 30-60 days when our client began to receive invoice payments about seven days earlier than before. Why? Because the trigger for sending the invoice was the product ship date. Not at some arbitrary point after the product delivery date.

Outcomes

With more timely invoice payments, their cash flow improved. They could meet payroll without a financial fire drill, and the vendor relationships improved since invoices were paid on time. This client restored their good credit with vendors, making terms and negotiations more favorable when an unusually large order was placed and additional materials were needed. Even the salespeople were trained to support cash flow by asking for deposits from new customers and for orders exceeding a predetermined purchase amount.

Speeding up invoice payments to improve cash flow happened due to several organizational changes, but the first change had to be consistent and timely invoicing. To be sure the solutions were sustainable and that there was continued improvement, we did a monthly review of the client’s financial status.

If you’d like us to look at your cash flow management to see if there are ways for more timely invoice payment and avoid periodic payroll triage, schedule a conversation with me at your earliest convenience. https://calendly.com/sfisher-strategypg