When a company’s sales fluctuate seasonally, it can be very difficult to guarantee the treasury for the viability of the business. Some strategies based on collaboration, communication or process improvement can improve cash flow. Especially, in periods in which sales slow down due to seasonal or conjunctural problems.
Datisa proposes to SMEs four strategies with which to combat the weakness of their liquidity in complex moments.
Four strategies for SMEs to guarantee their treasury
1. Negotiate a variable payment agreement with suppliers
Negotiate with your suppliers a more flexible payment agreement that varies according to the time of year. And, thus, adapt payments based on the economic activity of the business. This formula is particularly interesting for companies closely linked to seasonality. Or for short-term situations that can seriously affect the activity of the business, during a specific period of time.
The key to the success of this model, Datisa explains, is reciprocity. That is, implement bidirectional flexibility. So that the company can also cut payment times to suppliers if they request it to deal with their own slowdown peaks. To guarantee that this flexibility is possible, SMEs must support their collection and payment processes in a financial ERP. The software will provide updated information on the viability of the change. And, it will establish the new collection and payment workflow, guaranteeing profitability in both directions.
2. Save at the busiest times
Storing a cash reserve can turn the tide of business during lean times. The size of this cheap mattress can vary. But as a general rule of thumb, three to six months’ worth of operating costs may be the key. It goes without saying that the larger the reserve, the more security it will bring to the business.
3. Buy stock during peak periods
Planning to buy stock when business is in full swing can also be a good idea. Fundamentally, because, in general, these periods coincide with a strong treasury. Buying when cash levels are good allows you to save money through discounts on large orders. In addition, it will allow the company to save on shipping and transportation costs as well. Negotiating with suppliers, manufacturers and carriers will help you get better prices.
However, to take full advantage of the possible discounts for larger purchases, it is necessary to be clear about the needs of the organization in the future. And, also, the organization of the space in the warehouse, if you have it. Or the cost of storage, if third-party facilities are used. Using an ERP that allows sales simulations and forecasts, based on historical data, will help to be safe in a long-term business process.
4. Simplify processes to increase efficiency
In the long run, simpler processes save time and money. Getting rid of unnecessary software, finding a way to work better, for example by simplifying the collection and payment process, or automating processes, may be the key.
With these recommendations, SMEs will be able to maintain a constant cash flow, despite seasonal fluctuations. And, at the same time, continue to be operational, driving the growth of your business.
George is Digismak’s reported cum editor with 13 years of experience in Journalism