Inventory Management Tips to Improve Cash Flow

business cash flow strategies inventory

Inefficient inventory purchasing and stocking can drain your cash flow. Make sure you are following these steps to ensure you aren’t needlessly locking up cash in your inventory.

Inventory Management Tips to Improve Cash Flow

  1. Get an inventory management system. There are several easy and inexpensive systems available. If you don’t know what inventory you have on hand, you have no way of knowing what to order and what is not selling.
  2. If you maintain “safety stock,” then analyze whether or not you use it, how often you use it, etc. You may be able to reduce the amount you keep in safety stock.
  3. Stop making or buying items that don’t sell. It may be emotional for you to let it go, but it’s a waste of cash and it’s making you less profitable.
  4. Implement internal controls so you you don’t lose inventory to employee theft or damage due to employee carelessness. Keep in mind employee theft of inventory also happens at receiving.
  5. Break down and report your inventory into three categories: safety stock, replenish stock, obsolete. Analyzing inventory this way helps you make smarter decisions about purchasing.
  6. Develop a company policy to identify and liquidate obsolete stock and execute the action items every month or every quarter.
  7. Think twice before taking a supplier up on a bulk-purchase discount. You may be getting your widgets at a discount, but you may be purchasing too many widgets. If you’re struggling with cash flow, bulk-purchasing is not the fix. Take advantage of bulk discounts once you get your cash flow under control.
  8. If you let your supplier order and stock inventory for you, make sure you have a system in place to closely monitor their actions.
  9. Use drop shipping whenever possible.
  10. Finance your inventory, but implement a system that immediately pays off the debt when inventory is sold. For example, if you financed $5,000 worth of inventory and sold $1,000 of it in the first week, pay off that $1,000 on Monday.

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