As a manufacturer, fluctuating costs and prices make forecasting something of a moving target. When you factor in commodity prices, labor, fuel, tariffs and duties, and prices of raw materials, the financial picture can shift, sometimes with little warning, from month to month.
These fluctuating factors make cash flow inherently challenging in the manufacturing sector:
- High volumes with low gross margin and profit margins.
- Long lead and shipment times for materials and products.
- Late payments from customers, whether a claim against a defective order is causing the delay or customer’s payment cycle doesn’t align with yours.
One outcome of these cash flow challenges for manufacturers is a greater reliance on credit solutions to meet payroll, equipment and facility leasing, and other obligations. One way to solve these cash flow challenges is transitioning to payment solutions, such as automatic clearing house (ACH) payments and bill pay, in place of traditional paper checks.
How ACH can streamline cash flow
An ACH payment lets you move money securely from the company account to the vendor’s account. Here are some of the ways it can create a seamless transition from paper check payments.
Get access to capital more quickly
Not only can you increase on-time payments, but you’ll also gain access to your funds almost immediately, giving your company access to working capital more quickly. Increasing on-time payments would reduce your reliance on revolving credit, so you can use that balance for more pressing things.
Convenience for vendors
Maintaining excellent relationships with your vendors is also a key aspect of managing costs. Establishing an ACH transfer via bill pay is one way to make you an excellent customer. They’ll know they can count on your payment to arrive, on time, accessible immediately.
Improve account forecasting
Because ACH payment funds are accessible more quickly, you can plan purchases with greater precision, with an eye toward less reliance on revolving credit solutions.
More secure than paper payments
Writing and receiving paper checks exposes the account holder to greater risk. Checks can get intercepted at some point during the delivery process, or the account information can be lifted by a dishonest employee or other bad actors, reducing the opportunity for fraud.
Paper checks cost 10 times more than digital payments. When you factor in the labor, postage, materials and check float time, digital solutions make better business sense.
Integrates with accounting software
ACH payments eliminate many manual tasks of paper-based payments, and that includes accounting. The bill payment system is compatible with many accounting systems and can update and reconcile quickly.
By transitioning away from paper-based payment systems, your manufacturing company can start getting a better handle on cash flow. To learn more about Minnwest Bank’s cash management tools, talk to one of our helpful cash management specialists in your community.