Five Ways to Improve Cash Flow for Dairy Suppliers

Maintaining a positive cash flow can be one of the biggest challenges for any business, and dairy suppliers aren't exempt from this either. We have talked previously about cash flow being the balance between the money coming in and out of your business and how if you don't manage it correctly you’re at real risk of running out of cash to produce your dairy goods and run your business. In the very worst case, poor cash flow can leave you with no choice but to shut your business down.

But don’t worry - there are a lot of things that you can do to improve your cash flow and keep your dairy supply business in good financial shape. Here are our tips:

REVISIT ALL YOUR DAIRY BUSINESS’ INCOME AND RELATED COSTS

This simply means creating a cash flow forecast to track all your income and all your expenses over a specific period of time.  This can be done by taking a look at your bank statements, invoices, and receipts and then documenting where all your money goes in the production process or, if this applies, the running of your dairy farm. 

According to Larry Tranel, an Iowa State University Extension dairy specialist, it’s recommended to maintain a cash flow budget for 12 months. “With a 12-month cash flow, you can figure out if there are some months where you are going to be short and do something different to make up the shortage,” he advises.

Here’s a quick step-by-step guide on how to prepare a cash flow forecast.

1. Estimate how much money you think you’ll earn in a specific period of time (weekly or monthly)
2. Know when you will get paid
3. Predict how much money you will spend
4. Put all your data together

For an in-depth guide to cash flow forecasting -  head here.

GET A FULL PICTURE OF YOUR INVENTORY

As a dairy supplier, one of your biggest investments is your inventory. So, it’s really important that you have complete visibility and control over it, as it can tie up huge amounts of money and occupy costly storage space if it's not managed well.

An online inventory system can be an excellent tool to help you here. It allows you to easily track your stock levels and closely monitor the dairy products you are storing. The key is to invest in your most popular products and let go of those that don’t sell well otherwise this could lead to wastage - both financially and food-wise. Remember, unlike other foods, dairy products like milk and yoghurts have a shorter shelf-life.

CUT DOWN YOUR SPENDING

Controlling your expenses can leave you with more money in your pocket, which is better for your cash flow. There are a lot of expenses that you can reduce and your cash flow forecast can help you identify those. From the list of the outgoings you have made, pick out the ones that you no longer need or that are not helping you make and save money. For example, your overheads. Consider outsourcing so that you don’t have to hire people to manage your payroll, IT, or other paperwork. Or better yet, automate your repetitive admin tasks, like order collection and invoicing, so you can save more money and more time.

Cutting down your spending may also mean selling unneeded machinery, switching to a more affordable energy supplier or even moving to a cheaper production space.

INCREASE THE PRICES OF YOUR DAIRY PRODUCTS

This could prove to be a little bit tricky especially if your original strategy is competitive pricing. But if you’re not earning enough revenue and you can see that an increase in pricing will fairly compensate you and your staff’s hard work, maybe it’s time to bite the bullet. After all, the secret to positive cash flow is to have more money coming in than going out.

MAKE PAYMENT EASIER FOR YOUR CUSTOMERS

Late payments are not good for business and can put you in a tough spot. And according to MYOB it can even affect your personal finances.

There are numerous ways to make it easier for your customers to pay you. One way is to integrate a payment gateway into your website. This will enable your customers to pay you online using their preferred credit card. Another way is by using a ordering and payments system that has an “Instant Payment” feature which automatically charges your customers by credit card, direct debit, or depending on the agreed payment terms. Not only does this make it very convenient for them to pay you but it also eliminates the need for you to call them up and chase them for payments.

Running a dairy supply business isn’t just about pouring all your money into creating unique diary products and delivering them to venues, it’s also about managing your finances and making sure you always have positive cash flow so you can guarantee a bright future ahead of you. Remember, no matter how good you are at your craft, your business can still fail without cash.