Financial leadership teams have their hands full when it comes to global trade transactions. Maintaining a solid cash flow is imperative, but with extended payment cycles and the ongoing possibility of delays, liquid resources aren’t always a given. Fortunately, financial leaders can shore up their money with a few key strategies, giving them the confidence to navigate turbulent waters in the global trade market.
Keep reading to discover four ways to strengthen cash flow in global trade.
1. Speed Up Customer Payments with Better Conditions
In any industry, customers who take too long to make payments can disrupt a company’s cash flow. International trade is no exception. With erratic customer behavior as a common challenge, finance leaders need to be savvy when it comes to structuring payment terms. The clearer those terms are, the better.
Finance leaders should work to establish shorter payment terms. This speeds up the process and results in larger payments. While shorter terms can take some convincing, trusted buyers should be willing to agree to them to maintain a relationship. Leadership teams can sweeten the deal with discounts for early payments, too.
Buyers will appreciate easy payment processes, so finance leaders should distribute digital invoices. These are easier for both parties to manage, and they can lead to faster payment times. Financial leaders can measure the effectiveness of these changes by monitoring how many buyers agree to faster payment terms and how quickly payments are made.
Making these adjustments can help financial leaders, but they should be mindful of potential problems. For example, courting a handful of buyers with incentives can backfire and actually minimize cash flow. Financial leaders would be wiser to expand their pool of buyers and avoid being too generous with their negotiations.
2. Create Dedicated Settlement Accounts
International transactions often can be slow due to currency differences and the long process of reconciling them. And for businesses with shared IBANs, it’s tricky to assign payments to customers and keep accounting accurate.
The better choice is for financial leaders to create settlement accounts that are assigned to each customer or currency. That way, businesses won’t encounter as many slowdowns with currency translations, and they’ll streamline their workflows in the process. Establishing an IBAN account for your business can help ensure that each payment is correctly marked. Businesses will build their liquidity and minimize the risk of delays when they use multiple accounts rather than one.
Financial leaders can assess success by considering how long reconciliations take. With multiple accounts, the timeline should improve. At the same time, leaders should be careful to avoid common pitfalls. Too many stagnant balances can be cumbersome to manage, and turning to manual reconciliations can lead to less accurate results—ultimately impacting cash flow in global trade.
3. Avoid Liquidity Gaps with Automated Payouts
If a company makes a payment on a fast timetable but doesn’t match that speed with collections, it could hit cash flow snags. That’s why automated payouts make a lot of sense. Automation ensures a regular and predictable payout date from vendors. And that contributes to a better cash flow cycle.
Financial leaders can use software to stay organized, scheduling payout times and predicting income. Leaders can offer discounts for early payments and draft clear rules for payment deadlines. Businesses that see a decrease in late payments after instituting these changes should start to see a more stable cash flow situation. To maximize the potential for success, financial leaders should avoid manually-created tools, like spreadsheets, since they can be less accurate. Using a financial management platform with forecasting capabilities will help companies identify payment patterns to know when they can anticipate liquidity challenges.
4. Focus on Smarter Execution in the FX Market
Currency shifts can make any business uneasy. In response, financial leaders should focus on securing predictable exchange rates and determining the best conversion timing to protect cash flow in global trade. They also should use options to help sidestep eventual changes in currency valuations. Similarly, a rolling hedge program can help companies access reasonable exchange rates that won’t hurt their bottom line. Without a well-executed plan, companies can lose their profits on account of currency fluctuations.
Even with a smart plan, companies still need to be careful about speculating on currency changes. They should reassess their FX strategy periodically to make sure it’s working. Ultimately, financial leaders can lower risks with stronger FX execution and maintain a consistent cash flow.
Improving Cash Flow in International Trade
Financial leaders don’t have to completely redo their approach to global trade. But with a few key strategies, they can stabilize their cash flow in global trade. Automating payments, focusing on faster collections, and creating dedicated settlement accounts can help financial leaders find their footing in a global market prone to significant swings. When financial leaders can be proactive and account for currency exchange obstacles, they’ll position themselves for a more robust future.
