The financial management process of collecting payment for goods and services is an area where companies need to select their cash flow methods. Even when many transactions occur on credit, businesses often struggle to keep up with outdated, misaligned strategies and processes.
Cash Flow Methods
When it comes to speeding up payments, financial managers often use one or a combination of the following cash flow methods:
Use of trade credit
Buyers negotiate delayed payment terms with their suppliers. The variables include the importance of the supplier to the buyer, the relationship’s history, and the supplier’s credit worthiness.
Invoice finance
The organization arranges short-term debt collateralized by a portion or all the company’s accounts receivable balances. Sometimes called “seller side financing”.
Reverse factoring
A financial institution agrees to pay the company’s invoices to suppliers at an accelerated rate in exchange for the discounted invoice amount. The arrangement allows large buyers to support their supply base by giving them access to credit at lower costs.
Factoring
The sale of account receivable to a third party for a negotiated discount.
Dynamic discounting
Buyers pay suppliers early in exchange for discounts on the supplier’s invoice. Bancoli invoicing allows you to offer discounts to your customers in exchange for early payments. This will bring in more cash flow to your business without having to use credits and paying interest rates.
One of the most important aspects to understand when it comes to supply chain management is how to use each of these strategies. But more importantly, it is understanding how to use them in a coordinated way. This will optimize efficiency and increase cash flow.
Have you chosen your preferred cash flow methods?
Selecting the right combination of cash flow methods for your business is part of creating a high performance supply chain financing program. Do you know how to save time and money by optimizing your supply chain?
