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This interim
period is critical. It's a natural time to manage cash flow optimistically to increase inventory and service levels as orders
start to increase. At the same time, customers are stretching out their payment cycles (i.e. vendors) as much as possible
over the next several months as they start to ramp up. Their cash cycles aren't kicking in yet either.
For distributors,
there are a lot of sales indicators that point to positioning for sales opportunities. But the cash cycle at this point can
whiplash badly. The problem is compounded ...
This interim
period is critical. It's a natural time to manage cash flow optimistically to increase inventory and service levels as orders
start to increase. At the same time, customers are stretching out their payment cycles (i.e. vendors) as much as possible
over the next several months as they start to ramp up. Their cash cycles aren't kicking in yet either.
For distributors,
there are a lot of sales indicators that point to positioning for sales opportunities. But the cash cycle at this point can
whiplash badly. The problem is compounded because the margin of error is much thinner than two years ago for most companies.
Credit is tighter. And many companies are entering year three of a down cycle with customers who are also stretched pretty
thin.
If you throw one major customer into the mix who turns from slow pay into no pay... that can tip the scales.
Industry
veterans know how to manage and leverage this part of the cycle effectively. But even they acknowledge that it's difficult
to work against the natural instincts at this point to be overly optimistic about how quickly you can cover your assets.
A
wise business man once said that it's good to be optimistic about sales; it's better to be pessimistic about cash flow. That's
the current pulse as distributors continue to see sputtering signs of life in their sales, but are working hard to manage
the cash cycle and balance working capital.
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| BUSINESS DEVELOPMENT MANAGER | Graybar Electric Company | Denver, CO |
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