Striking the right balance in inventory management is a constant challenge. “Ultimately, businesses aim to balance their inventory, avoiding both excess and shortages, while minimising the time their cash is tied up,” Huxley says. But achieving this requires precise forecasting, strong collaboration, and the agility to adjust as market conditions shift.
Robust sales forecasts can help a business manage the fine line between holding too much inventory and holding enough to meet customer needs. “The cash flow gap is the time between outgoing payments and incoming receipts. Understanding this gap helps identify the best funding approach,” says Huxley.
Tools and tips to help manage cash flow
While human collaboration within an organisation is critical, there’s tech to lean on too.
The Business Cash Flow tool, which can be accessed by customers in the CommBank app, offers a monthly summary of incoming and outgoing cash flow. The tool provides a cash flow summary briefly and allows comparisons with the previous 12 months and a real-time transaction history.
There is also Daily IQ, a free business insights tool for eligible CommBank business customers. Business leaders can compare trends and changes in their cash flow balance to help them identify risks and opportunities for their cash to work harder.
Unique cash flow challenges by sector
Businesses in the services sector face a different cash flow challenge to those that hold inventory and buy and sell goods.
Talent is one such business. The company provides technology contractors for enterprise and government clients in Australia, New Zealand and North America.
It is a high-volume, lower-margin business, with over $1 billion a year passing through its bank accounts, and so managing cash payments and collections is crucial. Mark Nielsen, Global Chief Executive Officer, explains that the business pays its 4,000-odd contractors fortnightly, but is only paid by its customers between one and five weeks in arrears.
Talent, which also provides project delivery and people and culture services, pursues several strategies to optimise its cash flow.
Tight margins
Most of its business is generated from long-term supply contracts and payment terms are a key consideration. When determining contract pricing, Talent also considers the length of requested credit terms and cost of funding.
It is also careful to ensure the invoices it sends out are 100 per cent correct, because clients will query any error and that can cause a payment delay. The five-person credit team is incentivised to keep days sales outstanding (DSO) as low as possible. This is a crucial metric – Nielsen says that for every day the DSO slips, the debt balance increases by $2 million with additional interest incurred of around $100,000 per annum.
Talent’s CEO, COO and risk officer closely monitor cash flow, receiving daily cash collections reports. “And each week, the financial controller sends out a pack showing net cash or net debt position within the organisation, which we monitor to make sure that it’s not out of sync compared to last year,” says Nielsen.
Solutions for closing cash flow gaps
To bridge cash flow gaps, businesses can leverage various financial solutions, such as those offered by CommBank.
Huxley says that once a business has put in place good stock and inventory management, accurate cash flow forecasting and an efficient debt collection process, they can fill the remaining cash flow gap with a loan facility.
CommBank offers solutions like Stream Working Capital, which uses outstanding invoices as security to provide immediate access to funds. This helps businesses manage fluctuations in business cash flow without traditional property-based loans. The bank also has another loan product, called Working Capital Facility, which unlocks cash tied up in receivables – like Stream – but also in inventory.
“These financial solutions give businesses the confidence to make strategic decisions, navigate unexpected challenges, and seize growth opportunities that might otherwise have been out of reach due to liquidity constraints,” Huxley says.
Things you should know
This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. You should consider seeking independent financial advice before making any decision based on this information. The information in this article and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this article.
Credit provided by Commonwealth Bank of Australia. Applications for finance are subject to the Bank’s normal credit approval. Full terms and conditions are included in the loan offer. Bank fees and charges may apply.
