Managing Cash Flow Pressures in Transportation Logistics
Cash flow is an ever-pressing matter within the supply chain. It’s a factor that’s always in motion and something you must constantly manage. In the past few years, and especially with Covid-19 reactions, cash flow is an increasing concern for enterprise supply chains.
Cash flow used to be pretty predictable. Anyone could carry over data each year and accurately predict cash flow patterns with relative ease. Then, the 2020 lockdowns made an impact on the entire supply chain industry. Capacity within the global supply chain is tightening while demand is rising, along with shipping prices. Carriers, shippers, and vendors now need to ensure a faster influx of cash, and a slower rate of outgoing cash. These impacts require companies to implement more long-term changes to help them through the effects of the past year.
Cash flow is a concern at every step of the supply chain, but it has become a specific challenge for transportation. Transportation activities require many steps before they can be executed correctly and open the door for more cash flow. There has to be invoicing, the possibility of remitting payment, and collection for the transportation. If your company is struggling with these steps along the way, there are ways that your company can take action to improve cash flow management.
Strengthen Your Carrier Relationships
A key element to managing cash flow is creating a solid relationship with your carrier. Communication with your carriers can only benefit your cash flow. Regular communication can assist your company and carrier in understanding each other's capabilities with each transaction and open the door for negotiations.
Implementing carrier scorecards are a perfect means for communication and cost reduction. Carrier scorecards provide carrier reviews that drive performance and save costs. A solid relationship with your carrier will not only help bolster your business but will give your company a better understanding of its needs. Your company may have specific freight and transportation requirements that only certain carriers can provide, and prioritizing those relationships will save your company time and money.
Strengthen Contracts with Carriers
Your company can manage cash flow by reviewing the contracts and terms it has with your carriers. Reviewing the terms with your carriers can help you better understand what to expect from your relationships, and how your money is currently being managed. You can also take a look at the options for re-negotiating these terms so that there is optimal performance and cash flow can improve. This can bring more opportunities and alternative sources of financing.
If your company has high calculated transportation costs, and higher costs per unit, decreasing your variable costs may be your solution. You can do this by adjusting your freight terms to optimize shipment lot sizes, and by consolidating your shipments. Lowering direct variable costs can produce a consistent cost expectation to help your company better manage cash flow.
Have a Freight Audit and Payment Service
If your company is still working without a Freight Audit and Payment (FAP) system, you must find a FAP service. Without a FAP service, payments have to be managed Manually, which leads to hours of effort, is at a higher risk of error, and could result in overpayments. Not only is this time-consuming, but it increases labor costs for your company while also providing incorrect cost estimates. It is essential to plan the finances of your business to manage cash flow properly.
When your company decides on a FAP service, it will review your contracts and routing information, strengthen your contracts, and manage all claims. Your company can have its own In-house Freight Audit and Payment, where your company creates its own team dedicated to managing Freight Audit and Payment, or you could get transportation management software. This software assists in calculating costs and giving estimates, though it does require leniency in expecting miscalculations.
The most efficient way to gain control over your company’s Freight Audit and Payment is by outsourcing your FAP services. These services take away the variables and miscalculations that come with managing FAP by hand. This is the best choice as it combines transportation management software and an in-house FAP. When your company receives accurate cost estimates and finances, your company can better plan for the future.
Bolster Invoice Payment Process
A better payment process may be the perfect next step for your company. If your company has an accounts payable department solely responsible for Transportation Spend, it might be time to streamline your payment processes. Your company should analyze the timing of your company's payments, their frequency, and your key customers. Your company should also examine how efficient your payment process works while sending invoices, managing inventory, and how effective your accounts payable team is.
This analysis may show that your company has late payments or has made inaccurate payments. Carriers may prefer other forms of payment that you do not provide. You can solve these problems by moving to electronic payments that offer accuracy and efficiency with same-day completion. It also saves costs by minimizing manual tasks and reducing paper-heavy processes.
Streamlining your company’s payment process can also include implementing automation. Automation software works with your company's accounting system as it collects your company's information on carriers, invoices, costs, and who needs to know the information. Automation communicates with your company what payments need to be made and pays carriers in their preferred form of payment. This takes care of the inefficiencies of accounts payable while maintaining every party’s bank relationships.
Improve Days Payable Outstanding (DPO)
One way to improve supply chain finances in today's climate is extending the time which your company pays its bills. Having more flexibility in when your payments are made helps your company allocate its money to where it is most needed and better plan its finances.
Improving your supply chain DPO allows your company to pay for higher priority needs like payroll, insurance, and licenses. It also assists in transportation when your company can pay for fuel, tires, and repairs. If your company extends its DPO, Trax can help streamline this change by providing services to the carrier. Trax’s Invoice Extension reduces a carrier’s price pressures, preventing them from affecting your company.
When your company ideally allocates its money and manages its finances, it also helps them accept more orders. You can adequately care for your customers once your meet your company’s needs. This allows your company to save money it already has while increasing cash flow by gaining more customers.
Transportation Spend Management
The best way your company can begin to manage its cash flow is by building up to Transportation Spend Management (TSM). Transportation Spend Management can help your company gain complete visibility over its transportation routes and costs while saving money and gaining cash flow. TSM is about building your company from using only Freight Audit and Payment to becoming proactive in transportation difficulties and gaining control over your company’s growth and finances.
Transportation Spend Management wraps all these solutions into one, as it strengthens your carrier relationships by having strong communication and an efficient payment system. TSM brings you a step above needing a Freight Audit and Payment service, contributing more visibility and solutions as it examines a holistic view of your data. When your company masters its Transportation Spend Management, there’s no need to worry about meeting payments or inaccuracies in the payment process, as TSM optimizes each method and process your company uses.
Trax Can Help
Trax knows the Covid-19 pandemic had a significant impact on supply chains, and we’re here to help you with the pressures that come from managing cash flow. We can bring your company all the way through the process of mastering Transportation Spend Management.
If your company needs a better payment process, Traxpays can make your payments more efficient by collecting your company’s data and giving you a clear payment request form for your company to pay. Trax can help grow your business to become a leading company and provide many resources along the way.
Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.