What are the best strategies for managing working capital with customers who have long payment terms?

2 Invoice promptly and accurately

Another way to speed up your cash inflows is to invoice your customers promptly and accurately. You should send your invoices as soon as you deliver your goods or services, and make sure they are clear, correct, and detailed. You should also include your payment terms, due date, and preferred payment methods on your invoices. You can use electronic invoicing systems, online payment platforms, or automated reminders to make the invoicing process faster and easier. By invoicing promptly and accurately, you can reduce the chances of disputes, delays, or errors that can affect your cash flow.

3 Manage your inventory

A third strategy to optimize your working capital is to manage your inventory efficiently. You should monitor your inventory levels, turnover, and demand patterns, and avoid overstocking or understocking your products. You should also implement inventory control systems, such as just-in-time, economic order quantity, or ABC analysis, to reduce your inventory costs and wastage. By managing your inventory, you can free up cash that is tied up in unsold or obsolete goods, and increase your liquidity and profitability.

4 Use financing options

A fourth strategy to cope with long payment terms is to use financing options that can provide you with short-term cash. You can use factoring, invoice discounting, or asset-based lending to sell or borrow against your accounts receivable, and get immediate cash in exchange for a fee or interest. You can also use overdrafts, lines of credit, or trade finance to access funds from your bank or financial institution, and repay them when you receive your payments. By using financing options, you can bridge the gap between your cash inflows and outflows, and avoid liquidity issues.

5 Monitor your cash flow

A fifth strategy to manage your working capital is to monitor your cash flow regularly and carefully. You should prepare and update your cash flow statement, budget, and forecast, and track your cash inflows and outflows. You should also identify and measure your key cash flow indicators, such as working capital ratio, current ratio, quick ratio, or cash flow margin. By monitoring your cash flow, you can detect and prevent any potential problems, such as cash shortages, surpluses, or mismatches, and plan your cash flow accordingly.

Managing working capital with customers who have long payment terms can be challenging, but not impossible. By applying these strategies, you can improve your working capital cycle and cash flow, and enhance your financial performance and stability.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?