Profitability might be the ultimate gauge for measuring the success of the business. However, a strong cash flow is critical to running a profitable firm and laying the groundwork for long-term growth. Any cash flow problem, even just a tiny one, can arise as unintended consequences. For example, insufficient cash to pay bills, more debt, and, eventually, a bad image of the company. Let’s take a look at several popular cash flow problems that wholesale businesses often face.
Messy accounting is one of the most popular cash flow problems in many companies. With a disordered accounting system, it will be extremely difficult for businesses to monitor income and expenses. Improper accounting causes misinformation regarding the cash flow situation, which is the reason why companies often make bad decisions. Moreover, if the company can not manage bookkeeping and financial accounts, it may have difficulty accessing credit arrangements and paying taxes accurately.
Accordingly, accounting records must be accurate. Besides, financial statements such as payables aging, and cash flow statements. Bank statements must also be reviewed regularly. These practices will help companies to be aware of money going in and out of the firm.
Bad Debts By Customers
Generally, any loans or outstanding balances that a business considers uncollectible are referred to bad debt. In a wholesale company, a bad debt occurs when you sell a product or service to a consumer who does not pay. Bad debts can be devastating to firms of all sizes, especially to smaller organisations that lack the revenue or reserves to sustain the loss.
If non-payment is an issue for your firm, you should conduct extensive credit checks on customers before doing business with them. Only give credit to consumers with a good payment history and a good credit history. Additionally, with customers who are just starting up or do not have a solid payment record, it would be better to request down payments.
In the hope of increasing sales, many companies choose to invest more in resources like staff or warehouse space. However, expanding the business too quickly will end up with extra fees such as greater rent and inventory holding charges. And possibly, your company might not make enough money to cover those costs.
Besides, another issue for wholesalers is to keep a warehouse fully stocked. Holding stock enables companies to deliver orders faster. However, in case there are too many products in the inventory, it will tie up your cash and cost you a large amount of storage expenses.
A company that does not earn enough profit will not be able to maintain consistent cash flow. Increasing sales is one of the considerable ways to increase profit, but it is not the one. Reducing expenses is also an effective strategy to boost your net profit. Similarly, you can raise prices to maximise profit margins and promote bulk purchases to grow total order values. After you have improved cash flow by cutting expenses and boosting order values, you can boost revenue by investing in marketing and other resources.
In conclusion, maintaining a stable cash flow is always a tricky deal for many companies, especially SMEs. Nowadays, with the development of advanced technology, everything becomes much easier. Adopting an ERP system may be a good solution. The software delivers strong financial management solutions to help your firm manage cash flow effectively. With decades of experience, Synergix ERP software is a customisable and fully-integrated ERP solution that will fulfill your requirements.
To encourage Singapore SMEs to digitalise their businesses, the Singapore Government has offered many government grants. Any eligible companies who adopt the Synergix ERP system can obtain financial support of up to 70% of the qualifying costs. Contact us now for a free consultation!