Stock levels verses cash flow - the Covid nightmare

Stock levels verses cash flow - the Covid nightmare

Covid has created a difficult problem for manufacturers and retailers, stock levels versus cash flow. Financially
keeping stock levels, of product or materials, low during difficult times to assist cash flow is the accepted norm
however Covid has made this problematical. With parts of the World taking turns to go into and out of some sort of
lockdown or ports/airports opening and closing on a whim importers are finding stock of product or materials either
delayed or not available due to suppliers being closed.

This means manufacturers and retailers need to walk the tightrope of over ordering to ensure they have a long term
supply which they need to fund whilst waiting for sales or finding themselves without the required parts/stock to sell
thereby losing clients and money.

Too much stock costing too much short term cashflow pain verses too little stock causing cashflow pain.

Don’t forget local suppliers may be reliant on imports so don’t assume that because they’re local they will be fine.
Now is the time to look at where your suppliers are and whether they are talking lockdown, what your supply chain
is and how robust and reliable it is going to be in the short term. It is the time for you to have some strong
conversations with these people and gauge what you can confidently get and when.
After you have done the above look at funding those required purchases:

  • when do you need to purchase
  • what are the payment terms
  • what is the time it will take to arrive
  • when can you get that stock ready to move
  • what is the usual time for that stock to move over the Christmas/New Year period

Based on this create a cashflow forecast built around payment to sale and what funding you’re going to need to
cover this period. Do you need to start conversations with suppliers for extended credit (tricky in this environment)
or start approaching banks or second tier lenders for funding.

In conclusion you need to start planning now as the door for imports is closing and you need to be ahead of your
competition to get those orders filled. Have the conversations with suppliers and supply chain so you can make an
educated call on stock levels. Run the cashflow and have your accounts all in order so you can move quickly to
source funding for any bulk stock orders and short term cashflow needs.

Posted: Tuesday 3 November 2020