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SAP Distribution Blog

Limiting Debt and Preserving Cash to Win During Down Economies

Posted by Gary Feldman on September 30, 2020

Typically, the best way to manage cash during a recession is to prepare for it before the recession hits. Companies which reduced their debt before the crisis have more flexibility to take on new debt. This is especially true now as banks start to cut back on credit limits.   In this second blog in our series on the 5 Tips for Thriving in the New Normal, we review some of the numerous strategies for limiting debt and preserving cash.

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  • Cost cutting – We all know that you can’t grow a business by cutting costs, but you can preserve cash during an economic crisis. Most businesses get fat as they grow and experience success.  A recession is the perfect time to cut the fat, but the key is to be armed with information and cut strategically.  Evaluate non-payroll costs first.
    • Delay refreshing capital expenditures that do not offer a quick ROI.
    • Employee benefits are not payroll! Professional clubs, societies and memberships are the easiest to cut. Although training may be essential, it can often be switched or supplemented with online or lower cost computer based methods.
    • Switching medical and other insurance providers can often result in savings. For example, you can also change the “base” insurance policy covered by the company to one with a higher deductible or lower benefits to reduce company contributions.
    • It is likely you have already eliminated non-essential travel and entertainment, now evaluate other “fixed” expenditures like auto allowances that are not being used.
  • Enforce Management Concepts
    • Review and/or establish, refine and enforce budgets
    • Meet with your suppliers and negotiate concessions.   Agreeing to consolidate purchases may result in lower prices in return for your loyalty. Good supplier relationships are always beneficial and initiating a conversation with your “partner” (as opposed to your vendor) can often yield good advice!  Check out our blog on Partnering with Suppliers.
    • Streamline your operations.
      • How often does an inspection result in corrective action? If never, eliminate it!
      • Ask your employees for cost cutting or process improvement ideas. They are the closest to the work and often appreciate being part of the solution.  This also creates or furthers a culture of continuous improvement.
      • Automate administrative manual tasks.   Some examples we have recently implemented include:
        • Automate e-mailing invoices instead of printing and mailing
        • Utilize ACH and “click to pay” for incoming payments over receipt of checks and depositing in bank.
        • Integrate e-commerce or shipping software site into your ERP.   As online sales volume increases, the ROI becomes shorter and order processing accuracy increases.
    • Vigilantly Manage Inventory
      • Clearing out inventory generates cash.  You need to be strategic about it to avoid stock outs:
        • Reduce slow turning and obsolete inventory through sales, clearance events or bundling. See our previous Blog "4 Actions for Distributors to Take During a Crisis."
        • Use tools like SAP Intelligent Forecaster or Netstock to statistically identify your appropriate stocking levels using statistical analysis.  See our blog on Slow Moving Inventory for more detailed recommendations.
      • Although it may appear counter-intuitive, increasing the depth of your inventory assortment can increase your cash!   Customers increasingly want a one-stop-shopping experience and increasing your variety of products can increase cash flow, especially if you can get extended terms from suppliers for expanding your product selection. 

To find out more about how you can Thrive in the New Normal with SAPDistribution.com and the powerful tools in SAP Business One, sign up for more updates or contact one of our distribution experts at 678-401-6244 or fill out a Contact Us form.

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