If an economic storm is brewing, your team should be prepared.
Here are three proven strategies for distributors who are ready to proactively build economic buffers and thrive through any impending storm.
1. Take control of your cash flow.
Challenges like economic uncertainty and supply chain disruptions turn your financial operations into a frenzy overnight. Strong cash balances and strategic cash flow timing is crucial, especially if it allows you the ability to pay your suppliers on time and take advantage of early discounts.
Cash might be king but the reality is, complete cash control is actually king. If your cash is locked up as working capital on your balance sheet as a receivable, you do not have full control over the strategic use of your cash.
No business likes to see their accounts receivables build up. But offering payment terms is probably a norm in your industry (if you’re not, that’s another conversation we should have), and you might think an aging AR balance is status quo.
While there are things you can do to speed up your collections, like offering incentives for immediate payment upon delivery – that’s not enough. Some businesses don’t even have internal resources to keep track of late payments and (gasp) don’t follow up at all, leaving invoices to dangerously age through time.
Many companies think they need manual resources and systems to follow up and collect invoices payments on time. That’s changed.
There are now software solutions that now take the thankless and time-consuming tasks of chasing payments off the desks of your talented finance folks. AR automation allows you to set up and create automated, digital and friendly payment reminders on specific days before and after invoice due dates. There are even technologies that will predict cash flowing timing and use smart AI-based reminders based on the aging of your receivables.
With technology taking the place of manual AR teams, internal resources can then be allocated toward core business initiatives such as sales expansion, customer acquisition and relationship building.
Questions to ask:
- How much of my working capital is tied up in my accounts receivables, and is this affecting my ability to grow the business?
- How are my invoices aging?
- What resources am I putting toward collections, and could I re-allocate those resources toward revenue-generating activities?
2. Be smarter about risk.
There’s never been a better time to explore all your business’s blind spots. Analyze gaps in your sourcing, manufacturing and purchasing process (more below). Reduce nonessential expenses that don’t provide ROI.
And most importantly, do not overlook customer risk. Risks of non-payment and fraud are realistic scenarios that must be taken seriously. During downturns, the risk only heightens.
It may be easy to turn a blind eye and forget about credit checks with a new customer who eagerly wishes to submit a large purchase order, or it may be tempting to use a factoring company to offset your risk, but these are oversights that can yield devastating impacts to your company.
Performing a thorough risk assessment on every new customer cannot be underrated. One of the most pervasive problems is the accuracy and reliability of credit checks and credit decisions. Many manufacturers require lengthy credit application forms and trade credit references before making credit decisions–but lacking the expertise to thoroughly assess risk and make appropriate credit decisions is the biggest problem.
Instead, enlist the help of experts and third-party resources to help you lower your risk of taking on new and potentially risky customers. Take the time to learn how to read credit reports properly, outsource your credit decisioning to service providers, or look into new risk and credit management solutions that take this task off your hands completely.
Questions to ask:
- Do I have a history of bad debts?
- Am I offering large credit lines that lead to higher risks of non-payment?
- What are the gaps in my current credit checking and decisioning process?
3. Become fluent in B2B marketplaces.
Supply chain resilience is complicated today.
Let’s start with your suppliers. If you rely on overseas shipments for raw materials or even finished goods, you’ve probably faced sluggish turnaround and sky-high container prices. It’s dangerous to rely on one supplier, let alone an overseas supplier. In the past, it’s been difficult for manufacturers to find local parts without visiting trade shows or sharing connections within the industry. That’s now changed.
Take advantage of the emerging world of business-to-business (B2B) marketplaces where you can search for and source all types of supplies at wholesale prices – that isn’t Alibaba. B2B marketplaces have been booming quickly in recent years with the help of funding from venture capital firms.
As McKinsey reports, B2B marketplaces “offer access to a broad pool of potential vendors operating under a wide range of business models, including… high-quality, pre-screened vendors.” Many online B2B marketplaces even help facilitate the process of identifying the right supplier and simplify transactions for users.
While many industries have remained underserved for a long time, that trend is now changing, particularly for raw materials. A few B2B marketplace examples for sourcing raw materials include Knowde (chemicals, polymers and ingredients), Shelflife (wholesale food ingredients) and Bonfire (aluminum pipe and steel sheet).
On the flip side, if you’re looking for a new channel to sell your finished goods beyond trade shows and your own sales floors, look for B2B marketplaces where you can reach new marketplaces. If you’re a furniture supplier, marketplaces like Faire could be a new channel for you. If you offer essential goods for the medical industry, marketplaces like DocShop Pro are good venues to explore.
Researching relevant B2B marketplaces in your industry will make supplier diversification and channel expansion less of a challenge.
Questions to ask:
- What B2B marketplaces exist in my industry?
- What type of supplier diversification strategy do I need?
- How can I use B2B marketplaces to expand my sales channels?
When you’re facing economic hurdles, it really is time to work smarter — not just harder. Preparation and optimization make all the difference, and are key to longevity and growth.
Chris Tsai is co-founder and CEO of Resolve Pay, a veteran fintech leader and entrepreneur. Before he launched payments platform Celery and led it to acquisition by Indiegogo, he worked in investment banking and private equity. He then served as Entrepreneur in Residence at Paypal founder Max Levchin’s startup studio that launched Yelp, Glow and Affirm. Chris co-founded Resolve and spun it out of Affirm as its B2B sister company. Over the course of his career, he has developed a deep understanding of B2B businesses and how emerging fintech innovations can support their growth and scale. Chris studied quantitative marketing at The Wharton School and computer science & finance at MIT.