Shorter Cash-To Cash-Cycles Will Ensure Chemical Shippers Have Money On Hand as Economy Improves

April 25th, 2011 - by Francis Ezeuzoh

As the economy rebounds and business normalizes, companies with healthy cash flows will be in a good position to address corporate expenditures and investments put on hold due to the recession. Those with long cash to cash cycles, however, may find themselves short on cash to fund future operations.

Even with strong sales marked on the books, companies may be cash poor due to long cycles associated with converting resources into cash flow. Inventory management, accounts receivable cycles and accounts payable times are all factors effecting cash to cash cycle times. Today, managing these components has become complex as business goes more global.

For example, when purchasing products from international sources, a chemical company may face a variety of new overseas procurement situations such as expensive letter of credits, logistics problems, and reliability. And when shipping overseas, long payment cycles, often just starting at product receipt, can extend cash payments to more than six months.

Strain on cash can adversely affect companies without adequate supply chain management processes. Chemical companies may need the support of a third-party logistics outsource that has the international experience and technology in implementing supply chain management strategies that may include developing free trade zones, consignment warehouses, customs automated clearinghouses and freight on board destinations.

A 3PL can also offer web-based transportation management system (TMS) technology that automates financial processes and provides visibility into the financial flow, reducing accounts payable times, ensuring greater accuracy and maintaining established accounts receivable time frames. Through better management of the supply chain – from inventory management through to accounts payable – chemical companies can improve cash cycles.

By Francis Ezeuzoh — Chief Financial Officer, ChemLogix, LLC

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