Cash flow is the lifeblood of all businesses, and without it even the most profitable of organizations can find themselves missing out on growth opportunities, or worse, unable to pay their staff or bills.
Procurement has long been considered a cost-saving hero, but the procurement department’s role is now less about cost savings and more about optimizing cash flow. No longer the domain of the finance department, cash flow is grossly affected by the successes of their procurement team.
The ways in which the procurement department can positively – or negatively – affect working capital are multifold and complex, and here we investigate just a few of them.
Inform decisions through data analytics
These days, procurement is all about data. Interpreting procurement data can help businesses understand their spend, and how to optimize purchasing decisions. Maximizing buying power, understanding markets and the best time to buy and consolidating suppliers or spend categories can all help to budget and control corporate spend. Real-time data gives instant, up-to-date insights.
Inventory management and the dreaded stocktake are historically time-consuming and labor-intensive practices, but they are essential to optimizing a business’ cash flow. There is a multi-fold detriment associated with having too much stock in inventory. Warehousing is expensive, and with warehouse space at a premium, a business must ensure they have just enough stock to ensure there are no delays in order fulfillment, but not too much that they incur the unnecessary expense to warehouse it. Having working capital tied up in stock does not help a business remain agile, nor enable them to respond to fluctuating markets.
When investing in technology, not only can your procurement department optimize your inventory management capabilities, but data analytics will enable you to forecast and predict stock requirements, resulting in successful cash flow management and minimized wastage.
The role of the procurement department is not just administrative, nor is it just about achieving cost-savings – negotiating terms with suppliers can add value and opportunities to boost cash flow. Lower prices, of course, are the main objective, but opportunities to build innovative and collaborative partnerships with suppliers can open up possibilities for growth.
Negotiate preferential credit terms
Securing longer payment terms, or agreeing on discounts for early settlement of invoices can all help your organization access working capital, and small percentages can add up to big savings over large volumes.
Technology can maximize procurement performance
eProcurement technology can ensure your business is monitoring spending by analyzing real-time spend data. The result is increased visibility and control, and more access to working capital than manual systems can offer.
Cash flow can also be increased through strategic sourcing of suppliers, and automated supplier management and contract compliance. An eProcurement platform provides an opportunity for the procurement department to boost cash flow as well as actualize savings in multiple ways. Strong supplier relationships can, over time, result in the most favorable terms and deals, and in a culture of collaboration and innovation.
Cash flow tells a critical part of the story of how healthy your business is, and even whether it is viable or not. Revenue is not enough – businesses must know where they are spending and have complete control over corporate cash. Your procurement team can take a strategic approach to cash flow management, resulting in healthier finances for your business.
A solid eProcurement process can significantly contribute to how effectively the procurement department can drive efficiency, and one with a comprehensive spend analysis function and inventory management capabilities will give your business a head start. To find out more about the eProcurement solutions ProcurePort can offer you, contact the office today.