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Managing Cash Flow in the Age of Supply Chain Disruption

By Mike Stevenson, CPA, Director Emeritus at Blue & Co.

Many of our manufacturing clients are having difficulties ensuring consistency in cash flow when their manufacturing base is overseas.

The factories overseas are able to produce product, but there seems to be a bottleneck once it’s shipped from the overseas port to the domestic warehouse.

Where Do Current Bottlenecks Occur in the Supply Chain?

Despite container volume from the Far East being down, US port terminals are so full they load and unload ships more slowly causing backups at sea. This makes delivery very unpredictable.

One of my clients had cargo put on a ship in February only to receive it at Long Beach in June, while this same client had cargo put on a ship in March and received it at Seattle/Tacoma in May.

This client is now shipping all their cargo through Seattle/Tacoma going forward due to faster turnaround.

Once cargo reaches the port, it is a guess when it will be delivered to the warehouse, making cash flow management a priority among management.

The Key to Managing the Cargo is Communication

Communication between the customs broker and your purchasing department.

My client’s VP of Purchasing is monitoring their cargo on an hourly basis to ensure the timing of clearing customs and when it is put on either a railcar, or truck.

Communications between management and suppliers.

Suppliers’ payment terms are usually between 30 and 45 days from shipment. But with the supply chain disruption, payment can easily extend beyond those terms.

It is imperative your suppliers know when they can get paid, even if it’s a partial payment. Suppliers understand the situation and are willing to discuss payment options, but keeping them informed is critical.

For example, my client creates a weekly cash flow forecast and is in communication with each supplier on what payments will be made weekly.

Communication between management and bankers.

Many companies have lines of credit or term loans. Juggling loan covenants can be challenging depending on when you take ownership of the cargo.

It is crucial to keep your banker informed about the status of your covenant compliance.

Is the Supply Chain Getting Better?

My client has noticed a slight improvement in the consistency of deliveries, but not to the point where managing cash flow is not a weekly or even daily priority.

Where onshoring is not an option, it’s important to be agile and flexible to make the best out of challenging circumstances.

If you have questions or concerns regarding the management of your cash flow during these uncertain times in the supply chain, please reach out to a Blue & Co. advisor.

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