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Review your supply chain

Managing the supply chain

When paying suppliers and subcontractors, timing is everything and there’s always a balance to be struck.

When your cash position is strong, early payment can be used as a way to secure vital relationships, as a negotiating tool, or both. And when cash is tight, you should look to make use of whatever flexibility is built into your terms, ultimately by extending them where possible.

Review the supply chain to improve your cash position

It’s important to make sure that the timing of cash being paid to suppliers helps your business’s cash position. For this, the following might be considered:

  • Take full advantage of creditor payment terms
  • Use electronic funds transfer to make payments on the last day they are due
  • Communicate with suppliers clearly if you ever need to delay a payment
  • With major suppliers, renegotiate the headline payment terms if you are a key customer
  • Carefully consider whether suppliers discounts for early payment make sense
  • When choosing your suppliers, consider which has the most flexible payment terms

Top tip: consider using supply chain finance or other forms of asset-based lending to free up additional working capital from your supply chain.

Review your supply chain: 5 key steps

UK-based companies should periodically review their supply chain and, additionally, when facing major business uncertainty, whatever the outcome of the EU Exit negotiations, and whatever other changes may be affecting the business, for example in relation to COVID-19.

The five steps are as follows:

  1. On-shoring or developing local suppliers might ensure reliability of supply
  2. Optimise manufacturing and logistics footprints, and possibly reallocate production. Digital technologies and advanced analytics tools can assist
  3. Build up safety stock levels in the short to medium-term
  4. Prepare for changes in demand
  5. Spend money on research and development (R&D) strategies to manage changes in your product specifications, for example as a result of EU Exit-related regulatory changes or shifting consumer demands.

Quotes
If a business is affected by external factors that it can’t control like COVID-19 for example, then it needs to talk to its customers and make sure they know that is has a problem. Make sure you’re talking to people.

Philip King, Small Business Commissioner

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