March 2019

How to Optimize Cash Flow When Inventory and Receivables Tie It Up

3 minute read

When inventory management ties up your cash and adds warehousing costs, these smart corporate credit moves can free up cash flow.

Inventory management can be a big hassle for small businesses. You've got to have it, but it often ties up your cash and adds warehousing costs.What if you could use your corporate credit card to make it easier and more cost-effective?

Planning for seasonal peaks

You've got a store that gets more traffic around certain events, or your business has a higher demand at specific times of year. Naturally, you want to take advantage of the increased opportunities, but to do that, you have to be ready to sell. So you place your orders months ahead of time, receive and inventory them before the rush and then wait for it to begin. Meanwhile, you're incurring storage costs until you can sell what you're sitting on.

Right products, right time, right price

You can use American Express to take advantage of “just-in-time" (JIT) delivery. JIT—getting the right products at the right time—has been used by the manufacturing sector and large retail chains for decades. JIT saves money because companies accept deliveries directly at the stores or smaller warehouses right when the products are needed, and therefore spend less on storage real estate and associated costs.

As a small business, you can apply JIT principles by first reviewing the volume of your purchases and the timing of your sales. On the purchase side, Amex accounts include reports across categories and vendors, so you can use that information to negotiate volume discounts. And while you're negotiating, see if you can get seasonal items delivered in smaller amounts at more frequent intervals to match with your expected pace of sales.

Staggered ordering, deliveries and payments will reduce the amount you're keeping in inventory, which can lessen your real estate expenses. Your supplier might also appreciate the inventory opportunities they'd get from staggering their deliveries to you.

While making smaller orders could seem like something that will generate more of a workload processing individual bills, automatic supplier payments and consolidated statements from Amex reduce such tasks while helping you track your spending.

Slow receivables and carrying/holding costs

Any time of year, one of the challenges of inventory management is the time gap between paying for it and reconciling your customers' 30- to 60-day terms. Although your cash may be locked up in your stock, there are a couple of ways to unlock it before you can actually sell it.

First, by using your card to purchase that stock, you can take advantage of Amex's interest-free grace period for up to 55 days1. That lets you extend your float so you can leverage cash on-hand to meet the next set of orders.

Second, after you've used Amex's category and vendor reports to negotiate volume discounts, you can reduce your costs further by applying your Membership Rewards points against the cost of your purchases.

Seize opportunities in any season

Sometimes it can be worth it to carry additional inventory. For example, if you're a seasonal business, you might be able to acquire deep-discounted stock during off-periods, take advantage of a supplier's special pricing or buy something in bulk at auction. Amex can help with that, too—with no preset spending limit, you're free to buy what you need when you need it.

Want to learn more about how an Amex card can reduce your business costs? Compare cards online or call us at 1-877-891-0821.

1 As a charge card, the balance must always be paid in full each month in which no interest charges will apply. The interest free grace period is 28, 29, 30 or 31 days from the closing date of the current statement to the closing date of the next statement depending on the number of days in the calendar month in which the closing date occurs. The number of interest free days varies based on a variety of factors, including when charges are posted to your account, whether your account is in good standing, and the closing date of your statement