Food and beverage futures
Working capital is the lifeblood of a business. It is the money a business needs to meet short-term expenses such as salaries, paying suppliers and expanding inventory. If a business has pressures on its working capital, it will struggle to operate and grow.
Food and beverage firms can face particular challenges in maintaining good working capital because of their heightened exposure to factors such as price volatility, seasonality and supply chain disruption.
The continuing impact of inflation and volatile prices for everything from energy and fuel to global commodities makes it difficult to predict cashflows and can lead to an increase in non-payment and delays in payment. In addition, many food and beverage products have a short shelf life making them a high credit risk. Supply chain disruption can also have a huge impact on working capital. Geopolitical tensions across the globe are making these issues more acute, affecting prices and transportation times.
Working capital problems in one company can ripple through the entire supply chain. For instance, distributors rely heavily on manufacturers for timely deliveries and on retailers for prompt payments. If these are unbalanced, it can lead to issues with cash management and working capital. As the operating environment becomes more challenging, banks are becoming more restrictive in what they will finance.
Measure and monitor your working capital:
Analysing and monitoring your receivables and working capital can help you identify trends and highlight emerging payment risks, enabling you to take action quickly.
Know your supply chain:
Look at the whole supply chain and where your business sits within it. Don’t just focus on your customers – assess the companies they depend on and the challenges they might face. This will help you see where there may be cash management and working capital problems that could affect your business. Also monitor your suppliers closely and make sure you have insights on their creditworthiness.
Consider taking out trade credit insurance:
Trade credit insurance protects your working capital by reducing the financial impacts on your balance sheet of non-payment or late payments.
Consider supply chain finance and factoring:
Supply chain finance allows businesses to optimize working capital by bridging the payment gap between suppliers and buyers. This can make suppliers more willing to accept extended payment terms without concern for default.
Factoring involves selling receivables to a third party (a factor) at a discount, allowing businesses to access cash immediately.
Food and beverage businesses face challenges to their working capital which can affect their ability to operate effectively and grow. Financial solutions such as trade credit insurance can mitigate these challenges and help you expand your business, while data analytics can help you to forecast potential losses so that you can take action to remediate them.
