How to achieve credit and cash flow certainty in uncertain times


The 2020’s have seen unprecedented uncertainty in both trading conditions and income for all but a few businesses. As we roll into 2022, how well equipped is your business to predict and protect cash flow, whilst ensuring you can extend customers the credit they need?

Cash flow certainty – two sides to the story

Cash flows in and out of every business, like the air we breathe. To extend the metaphor further, breathe out too much without taking air in and you’ll faint. Or worse. In the same spirit, every business is acutely aware of the need to balance outgoings (accounts payable) with income (accounts receivable). Businesses need to accurately predict income, to ensure they can cover outgoings, and budget for whatever else any excess cash can fund.

With a very real supply chain crisis threatening our ability to meet sourcing demand, and ever volatile domestic and international trade relations, businesses would be foolish not to get a firmer grip on cash flow beyond the limitations of inventory management. Getting a clear picture of other cash levers you can pull is a must to ensure continued supply, without jeopardizing your supplier or customer relationships.

Let’s look at how you can extend lines of supplier credit, lengthening your days payable outstanding (DPO), or how you can bring payments in sooner by shortening your days sales outstanding (DSO). All without creating conflict in your cash conversion cycle.

Extending DPO… and not upsetting your suppliers!

Procurement is diligent in driving cost savings, avoiding unnecessary costs where possible, and generally improving the amount of spend under management. Sales, on the other hand, continues to be laser-focused on driving up revenue, and generating more cash for the business. These are both vital for driving your business in the right direction, however, both activities can take a while for tangible results to reflect in the balance sheet. What can you do immediately to generate more cash to ensure you can cover all the outgoings planned?

Paying supplier invoices later sounds like an excellent idea on paper. You hold on to your cash for longer, extending your DPO, and put that cash to use where you need it. However, without meticulous management, you could incur late fees and upset supplier relations. Or worse, you could starve them of the cash flow they need to keep operating and lose an essential supply of goods or services!

If you want to extend your payment terms, a good place to start is a review of your current terms to understand what you actually pay, and when you pay it. Before making any sweeping changes, take a strategic view of which payments would make sense to generate desired impact, and start discussions with your suppliers. Read our article to learn more about how to extend supplier payment terms for more detail.

Another option is to involve someone else in the payment process to provide funding, which could leave both parties even happier than before. Supply chain financing, although not a new concept, has really grown to prominence in recent years as a way to support suppliers and buyers’ need for cash.

Supply chain finance is a common approach to giving your suppliers the option of getting paid earlier, even earlier than their contract terms. The suppliers agree on a number of payment days, and the third-party funder will pay them as agreed. The suppliers then pay the funder a small fee for the benefit of getting the cash earlier than contracted, and the funder will collect as per the new terms.

Combining the option of supply chain finance with AP automation, as a beautifully packaged Managed Service, means you don’t have to stress about the administration of invoice processing and managing multiple payments and currencies, you don’t risk your supplier relationships, and you still retain visibility into what is being paid and when. Less hassle, more cash available, and happier suppliers. Phew!

Corcentric offers a range of services to facilitate both supply chain finance and AP automation. Get in touch to find out how these could support your cash flow needs today.

Reducing your DSO…and not upsetting your customers!

As a customer yourself, it’s not hard to empathise with your customers wanting as long as possible to part with their cash and pay you. Everyone wants to strengthen their own cash position and do more with the working capital made accessible as a result. Given that we operate in such uncertain times, you have likely already had conversations with your customers about extending their payment terms.

But can you afford to? It’s true that extending their terms may increase your chances of sales, and present you in a more favourable light, but it’s just not that simple is it?

Extending their terms ultimately means that you wait longer for cash, and this can undo all the good work you’ve done on your payables side, or worse, starve your own business of the vital cash you need to pay suppliers and fund growth.

Just like on the supply side, timing for renegotiating payment timeframes is a delicate matter, and poses a challenge at the best of times. You would typically wait for contract renewals, or introduce shorter terms at the point of initial customer sign-up. But both of these times are commercially sensitive, and could either cause negotiation losses in other areas, or worse, dissuade the customer from buying at all.

Fundamentally, you face opposing demands. On the one hand you want to extend payment timeframes to appease customers and ensure commercial relationships remain strong, but then you want to shorten DSO to win back working capital by bringing payments in sooner.

There must be a solution! Surely?

Yes, in fact, Managed AR can bridge this divide and just like on the AP side, can leave both buyer and supplier happier than ever before. You can use a trusted solution provider, such as Corcentric, to take ownership of customer invoicing and payment collections as an extension of your O2C process.

The process is simple and the benefits are instant:

    • Set DSO to the specific number of days that suits you – perhaps even just 15 days!
    • Get a consolidated payment that is reliable and easy to predict.
    • Say goodbye to bad debt entirely, with a non-recourse agreement that absorbs your risk.
    • Reduce O2C overheads significantly, by allowing your Managed AR partner to take charge of invoice creation, delivery, and collections.
    • Simplify cash application – multiple invoices can be grouped together, so you receive a single guaranteed payment for these that is more easily reconciled with the associated sales.

Extending credit to customers in uncertain times

Unless selling direct to consumers, businesses are typically expected to afford customers at least 30 days credit before expecting payment. Average payment terms have increased in recent years, but how long is too long?

Sales teams thrive off the ability to offer customers reasonable payment terms to sweeten their deals. Efforts to shorten DSO by restricting payment terms to fewer days are likely to hamper sales effectiveness. But, as mentioned earlier in this article, can you afford it?

You needn’t be conflicted. Corcentric’s Managed AR solution presents the perfect solution – allowing sellers to set their desired DSO, and allowing customers a far longer payment timeframe to suit their needs. Corcentric simply funds the time difference and fully manages the process of invoicing and collecting funds. Simple!

Furthermore, Corcentric’s Managed AR solution is non-recourse by default, meaning there is no risk of future expenses if customers do not pay on time, and subsequently eliminates bad debt. Corcentric takes ownership and responsibility for the invoicing and collections process, whether or not payments come in.

Get in touch directly, or keep an eye out for our next webinar, to see how Managed AR can provide credit and cash flow certainty in these uncertain times.