Here’s How an ERP Solution Can Improve Your Cash Flow

Cash flow is a very critical factor for an organisation of any size. This problem can quickly lead to financial problems. The crux is: it’s a make-it-or-break-it element to your business. Now the question is how to have real-time monitoring of your current and future cash flow.

Having a good ERP in place makes cash and its flow management as easy as a cakewalk. But before discussing how ERP can help in managing your cash flow it is crucial to understand the difference between cash flow and profit in order to fully figure out cash flow management.

Cash Flow vs. Profit

Cash flow is the actual amount of money flowing in and out of a business at a particular point. Whereas, Profit is the net income after expenses are subtracted from sales. 

A company may seem profitable on records, but may not have enough cash to pay its immediate operating expenses.

So how does this happen? Let’s understand this by an example. 

Assume you are a manufacturer who sells products to significant companies. Even when your sales increase, you still lack the funds to cover your suppliers’ bills and other operational costs. It is because the companies you are selling to are slow to pay or purchased it on credit, as a result, you don’t have enough cash in hand to cover your expenses.

As sales go up, the profit goes up. It is easy to assume that your business is succeeding while in reality, you have a bad cash flow. So it becomes paramount to manage it properly.

Now let’s understand three main categories of these.

The three categories of Cash Flow

1. Cash flow from operating activities

This type of cash flow is focused on core business operations. This includes money involved in the day-to-day activities of the company, such as cash received from customers, payment to suppliers and salary to employees.

2. Cash flow from investing activities

This type of cash flow reports the inflow and outflow of cash involved in investment-related activities in a specific period. This includes all the transactions such as buying and selling long-term investments, property, industrial units and equipment.

3. Cash flow from financing activities

This type of cash flow focuses on financing-related activities that are used to fund the company. These activities include transactions such as raising capital, share repurchases, dividends, and repayment of debt.

Here’s How an ERP Solution Can Improve Your Cash Flow

Keep track of overdue invoices

Cashflow problems usually arise when a company is unable to track its

overdue invoices which results in cashflow shortage. Not able to track

unpaid invoices of customers and sometimes failing to pay invoices on time can lead to cash flow problems. By integrating an ERP system, you can simplify and automate the whole cash flow process. You can easily track unpaid and overdue invoices and set reminders for the clients and internal teams. Since all the information is centralised in ERP, it is easier to access and monitor invoices in real-time.

Improved inventory management 

With real-time inventory updates provided by ERP, businesses can make crucial decisions about which items to restock at what time and which items not to be restocked based on sales. This can help in avoiding overstocking of items thus better management.

Real-time reporting 

With real-time time reporting of ERP, businesses can understand overall cash flow fluctuations and take the right decisions at the right time. With ERP, we can fully automate the reporting process and send timely reminders to the concerned management and clients, allowing them to be aware of missed invoices and make prompt payment decisions.

Automate workflow

ERP streamlines and automates the organisational workflow which ultimately helps in cost savings. Business operations can run smoothly without incurring additional labour costs. Furthermore, the whole process is automated which can help avoid delays in the billing cycle and helps businesses to generate invoices automatically. 

Reduces data entry errors and duplicate effort

Chance of errors is higher when data is entered manually. And in finance,

even something as little as a misplaced period can lead to major issues. Moving to ERP is a good way to increase accuracy as it automates the process and hence eliminates the need to enter the data manually. Furthermore, as records are interconnected in the system, there is no need to re-enter the data repeatedly. It can be fetched automatically into linked documents.

Eliminate Shipping Delays

Shipping delays are also a big reason for cashflow problems. Any shipping delays can result in delayed payments. With ERP in place, businesses can get real-time updates about orders. All warehouses are connected to the system and hence it is easy to track items.

Final Thoughts

An outdated system slows down business processes and is unable to manage cash flow properly. With the help of an ERP solution, you can better understand your cash and manage it effectively.

Beyond this management, an effective ERP system provides an abundance of advantages. Should you have any queries, feel free to Contact Us.