Leverage automated stock control to cut costs and improve cash flow: How does inventory affect cash flow?

2024-01-25
Yasaman Kamali
Yasaman Kamali
Online Marketer

Cost management plays an important role in the success of every business. When businesses have a positive cash flow, they are able to pay their bills on time and avoid late fees and penalties. This, in turn, helps maintain good relationships with suppliers and other vendors.

With a good understanding of their cash flow and costs, companies can more effectively manage their customer accounts and reduce the time spent chasing customer payments or dealing with supplier issues. By implementing effective cost management initiatives, businesses can free up more cash to invest in sales and marketing activities, develop new products and services, and expand into new markets.

Three steps to better managing your costs and building a better cash flow

Good inventory management plays a significant part in ensuring the health of a company's cash balance, as well as meeting customer demand and market needs. Effective inventory management involves tracking the amount, type, and location of inventory throughout the supply chain. This includes raw materials, work in progress, and finished goods. Businesses can use inventory management systems to automate many of these tasks and improve accuracy.

One of the most important ways that inventory management affects cash flow is by reducing carrying costs, i.e. the expenses associated with holding inventory, such as storage, insurance, and interest on borrowed money. Holding too much inventory can drive up carrying costs; holding too little may lead to stockouts, e.g. not having enough inventory to meet customer demand. By forecasting demand accurately and managing inventory levels effectively.

Inventory management also affects cash flow by reducing the time it takes to receive payments from customers. When businesses have a good understanding of their inventory levels, they can invoice customers more quickly and accurately, leading to improved cash flow and reduced accounts receivable.

There are three ways to improve cash and inventory management, including implementing two-way integration between project planning and stock control, automating stock reordering based on demand forecasting, and utilizing automated cash flow and cost reporting.

Implement two-way integration between project planning and stock control

Better inventory management starts with a strong connection between sales forecasts and inventory stock control. By understanding your anticipated demand, you can prevent over- and understocking by ensuring that the right amount of inventory is in hand to meet customer demand. This keeps carrying costs like storage and insurance costs at an optimal level and reduces the risk of obsolescence. It will also free up working capital for growth opportunities or expenses.

The best way to create and maintain that connection is to implement a just-in-time inventory delivery model. Just-in-time (JIT) delivery is a supply chain management strategy that aims to minimize inventory and increase efficiency. It involves delivering goods to business customers only when they are needed, rather than maintaining a large inventory of items that may not be used immediately.

For this approach to work, use real-world data to make informed decisions about stock levels and not just your gut feel or a hunch. Inventory management software can assist by providing access to historical sales data, market trends, and supplier performance metrics to optimize your stock control. With JIT delivery, businesses can negotiate better prices with suppliers because they are buying in larger quantities. They can also negotiate for better terms, such as discounts for early payment. Businesses who adopt this data-driven approach are also far less likely to have to scrap or discount inventory that is no longer in demand.

Automate your stock reordering based on your forecasted demand

An automated inventory management system plays a significant role in improving cost management and cash flow by reducing the management overhead associated with inventory control.

Automated stock control platforms, like OpusFlow, streamline the re-ordering process and reduce the time and effort required to manage stock levels. By automating stock reordering based on forecasted demand, you can maintain optimal stock levels without excess inventory tying up your working capital and cut administrative costs at the same time.

Automated approval workflow processes can be integrated into these platforms, ensuring that orders are generated and dispatched seamlessly. This not only saves time but also reduces the risk of human error in the ordering process.

Utilize automated cash flow and cost reporting to optimize business performance

It’s vital to have up-to-information about your cost base and cash flow at all times in order to make key business decisions, such as whether or not to invest in new products and services or embark on campaigns that support your business growth. Suppose you are considering a new sales campaign. Your reporting tools will provide insight into whether or not you have the financial capacity to fund these initiatives, and can help allocate resources effectively to campaigns that are likely to yield the best returns.

Insights from automated cash flow and cost reporting conserve cash when it’s necessary to enhance the agility of your business. During uncertain economic times, having this ability to make more informed decisions about cash management is crucial for survival and continued growth.

How OpusFlow can help you

Effective cost management and inventory control are key components of a successful business strategy. A positive cash flow not only ensures timely bill payments but also fosters strong relationships with suppliers and vendors. By integrating project planning and stock control to optimize inventory levels, automating stock reordering based on demand forecasts, and using automated cash flow and cost reporting tools for informed decision-making, your businesses can not only enhance financial health but also foster a solid foundation for future growth and success.

This is where OpusFlow comes in. OpusFlow is an all-in-one ERP software for installation companies.

OpusFlow helps businesses streamline their key processes within a single, holistic platform. You can automate tasks like order processing, invoicing, and stock control and reduce costs by eliminating the need for multiple software systems and by reducing the amount of time and effort required to manage business processes.

Learn more from a real-life example about how OpusFlow empowered a business like yours, resulting in a remarkable 50% cost reduction and streamlined operations.

If you are serious about cost and cash flow management, get in touch with us and find out how we can help your business.