What financial strategies do different industries use to stay cash rich?

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As global uncertainty and market instability disrupts the production industry – not to mention the lasting impact of the COVID-19 crisis – manufacturers are realising the importance of ensuring sufficient cash flow to combat crunches in working capital.

You’re probably already tightening your inflow process – shortening your accounts receivable period to bring money into the business quicker. You’ll also have looked into reducing your inventory to release money tied up in stock. And you probably have funding options in place – giving you access to affordable cash.

Of course, it’s not just manufacturers that need steady cash flow. Businesses of all kinds need available funds to keep the lights on during uncertain times. So, what new insights can you learn from them?

We spoke with businesses in different sectors to see how they deal with disruption. We wanted to know how they manage cash flow to keep their businesses running, and also ensure they have funds to invest in growth opportunities when they arise.

What cash management tips can you learn from other capital-intensive industries?

Organisations in industries like construction, real estate, mining and hospitality all need both long- and short-term financing. It helps them bridge the gap in lengthy cash conversion cycles, and gives them more agility. As the treasurer at a large, global infrastructure corporation says: “I liken it to this: our long-term debt is the actual building. You need this; however, our cash liquidity is like the infrastructure that serves it i.e. the roads, bridges etc. We need liquidity to get the funding and to be able to move cash around as required.”

To make sure they have sufficient cash in the business, these organisations use a combination of approaches to create flexible, affordable financing options. “We need a lot of funding,” the treasurer at a global real estate corporation tells us. “Our business is cash rich, however CapEx is high. Depreciation is high. And the cash cycles do not reconcile immediately – it takes time. In my view, surplus cash should always be used to reduce short term debt. Currently, we have term loans and both committed and uncommitted revolving credit facilities. We pay a commitment fee – and we can always draw back down on the fund if we need to.”

Businesses that build infrastructure are similar to manufacturers in that they can have the complication of a significant supply chain that also needs to be adequately funded. Much like your business, if they fall short of cash, they risk a failure in production. So, their suppliers further down the chain also need steady cash to ensure they fulfil project output on time and to budget.

What tricks do retailers use to successfully manage cash flow?

Another industry that needs strong cash flow is the consumer goods trade. Manufacturers looking to maximise their speed and minimise wastage to stay nimble could definitely learn some lessons from businesses in this fast-paced sector.

Retail businesses live and die by what their customers purchase – especially with buyer habits changing and shifting more online in the wake of the COVID-19 pandemic. So, they put a very heavy focus on knowing exactly what consumers want, then making sure they can meet these needs. They deeply analyse buying trends, helping their businesses plan for the future and purchase the right amount of the right source materials. So, they minimise cash tied up in unsold stock.

I worry that sales will slow and leave us with too much inventory.


Of course, some retailers create their own products and own the whole process from production through to sales. They need to react to sudden fluctuations in demand and shifting consumer trends, such as the sudden high demand for personal protective equipment brought about by the COVID-19 crisis. So, they have to carefully forecast their cash position to ensure their manufacturing operation remains stable. As the CFO of a luxury goods retailer tells us: “Usually, our peak sales season would be October to February. When it’s slack in retail, we still need cash for manufacturing. We need at least three months’ production time to meet demand. When planning, we know that in September we will be low on cash. We forecast cash and try to smooth out the peaks and troughs. We cannot not manufacture.”

Retailers need to make sure they’re as agile as possible. The most successful organisations adopt emerging technology to help them reduce waste at every point in their end-to-end supply chain. This minimises cash tied up in stock or materials and also improves production control. The CFO continues: “[Things like] IoT and automation will optimise supply chain management and shorten our production cycle. Being agile means we don’t have to keep 100 pieces of stock, which reduces the amount of trapped cash.

“We need to be responsive to demand and only keep what stock we need. We’re close to using radio-frequency identification (RFID) to identify where goods are in the production line, so we have that true visibility and predictability.”

What else can you do to improve cash flow and make your money work for you?

Businesses of all types and size need healthy cash flow to both keep the wheels turning and invest in future growth. And there are many tips that you can learn about ensuring sufficient cash flow by looking outside your industry and seeing what other sectors are doing.

Adopting a broader viewpoint allows you to consider a few factors. What can you learn about cash management from other cash-intensive businesses? What can retailers teach you? And what new strategies could you learn from other industries to keep cash in the business, maintain healthy balance sheets and still have enough to invest in the future?

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