Importance of Cash-Flow for Logistics Companies

Cash flow is of vital importance to the health of a business. One saying is: “revenue is vanity, cash flow is sanity, but cash is king”. What this means is that whilst it may look better to have large inflows of revenue from sales, the most important focus for a business is cash flow.

A difficult situation

This payment delay creates a dilemma for the logistics company. If they focus on growth and keep signing on new clients, they risk cash flow problems. On the other hand, if they refuse to sign on new clients, they limit their growth. Neither option is attractive.

Solving the cash flow problem

However, cash flow problems can often be solved by taking some simple steps. First, evaluate the cause of your specific cash flow problem. Knowing where the problem originates is critical to solving it.

Often, cash flow problems originate from a combination of things such as poor client selection, infrequent collections follow-ups, or inadequate financing.

The following three steps outline a process that improves cash flow in a way that supports growth.

 

1.Sign on customers who pay quickly

Many logistics companies are eager to grow and sign on new clients as quickly as possible. However, few spend the time necessary to determine if the shipper will, in fact, become a good-paying client. This crucial part of the pre-sales process shouldn’t be left to chance.

 

2. Improve collections

Many companies experience financial problems because they do not have a good collections system. Most business owners find collections work tedious and prefer to focus their efforts in sales and other areas. Ignoring collections is a mistake. Collections should be considered one of the most important company functions, second only to sales.

 

3. Given an incentive to pay early

One simple way to improve cash flow is to offer clients an early payment discount. Additionally, offering this incentive can help create goodwill with your client. Actual terms vary by industry, but it’s common to offer shippers a 2% discount in exchange for a payment within ten days.

Author: Sachin Lohade is a Chartered Accountant and works with Accounting Firms to improve practice and reduce costs. He can be reached out at sachin@corientbs.com or you can visit www.corientbs.co.uk