Cash flow issues: the frequently asked questions - solved

SPONSORED: Alan Gillies is vice president and head of UK sales at American Express Global Corporate Payments.

by MT Staff
Last Updated: 02 Oct 2016

 We’re a home-furnishings manufacturer with several overseas suppliers. Our current method of paying them – on invoice with short payment terms and in foreign currency – doesn’t seem to be maximising my cash flow. How can we keep our suppliers happy but extend cash flow at the same time?*

How you pay international suppliers can have broad implications for relationships, the contract terms and exchange rates you’re able to achieve. While the global FX market is intense, volatile and complex, your agenda is simple: you need to make a foreign currency transaction quickly, competitively and confidently.

The way you currently pay your overseas suppliers is actually very common – but there are downsides to your method. First, if you’re dealing with multiple payments, your bank could be charging you per transaction. No doubt your business could do without those extra fees. Second, you’re exposed to fluctuations in exchange rates. Whenever you deal in a non-functional currency – any currency that is not the main currency used by your business – you’re exposed to risk. Finally, your own cash flow restrictions are currently dictating how quickly (or rather, how slowly) you pay your overseas suppliers; you’re missing out on any kind of early payment discount.

So what’s the solution? You may want to consider setting up a foreign exchange international payments account. Look for a solution that allows you to send and receive funds online while managing the risks that come with currency fluctuations. You could also receive rate alerts via email or text message when a specific rate for your chosen currency is available, or lock in exchange rates with forward contracts. You could also get instant breakdowns of transaction status, currency and date, pending payments, and so on.

You should also consider charging payments to your corporate card. With American Express Corporate Cards, for instance, your suppliers get paid promptly while you could get up to 58 calendar days’ interest free credit. That puts you in a much stronger position to get those early payment discounts. Look out for extra perks, too. With the American Express Corporate Card, for example, your business could potentially earn American Express Membership Rewards® points every time you make a transaction.

 I’ve been running a double-glazing manufacturing firm for the past eight years. Turnover has plateaued at around £30m and now I am looking for ways to expand. I’d like to double spend with our main supplier but they are concerned with extending our line of credit as they fear this is risky, in light of the large chunk of revenue this represents for them. I don’t want to compromise on quality by looking to another supplier but I don’t have a cash surplus of my own, what should I do?*

As a small but growing business it can be frustrating to wait patiently for growth when you know you could speed it up with the right resources. I’ve seen this issue crop up again and again, particularly with rapidly expanding manufacturing firms that rely on key suppliers to help fuel further growth.

If you’ve been working with your supplier for some time and you are happy with the quality of their products, then you are quite right to try and stay with them. Even though you (presumably) have a good payment history, it’s natural for the supplier to be worried as by increasing your order you are also asking them to take on the additional financial risk by extending the credit facility. You need to find a solution that works for both of you. Here are a few options:

First, you could talk to your bank manager about an unsecured loan. That would allow you to purchase more goods from your supplier without having to extend existing lines of credit.

A corporate card could be the answer

You can also look at using a corporate card to pay your supplier. With a Corporate Card, you could take advantage of up to 58 calendar days’ credit to make your card payment interest free, while your supplier could receive payment in three working days.

That brings advantages for both parties. If your supplier can convert their receivables into cash quicker, they can become more efficient and they could potentially be in a position to do more business with you. Critically, a card company generally guarantees undisputed payments, thereby removing your supplier’s risk concerns.

Meanwhile, by having access to an additional source of funds, you get to purchase extra goods and make a better margin. And the more you spend with that supplier, the better placed you could be to negotiate improved terms. The key thing is cooperation. Supplier relationships are key in any business: make sure you treat yours with care.

 I run an insurance broker with ten direct agencies, ranging from car insurance to travel insurance. We work with a network of around 200 intermediaries and process up to 2,400 transactions every month with them. We’ve always used debit cards to settle these payments but this is causing a lot of difficulties in terms of reconciliation, administration and reporting. Help!*

 This is a big challenge for any kind of business that works with intermediaries, from travel agents and mortgage brokers, through to property portals and financial advisors.

I can understand your frustration. The amount and type of information that you can capture on a debit card is usually pretty restricted. When you’re dealing with multiple agencies offering multiple services, that can be a real headache. You’re probably spending a lot of time trying to reconcile invoices and that’s slowing down the speed at which you pay your suppliers – which won’t win you any popularity contests.

You want to lighten that administrative burden and find an accounts payable process that’s swift, simple and allows you to process all the necessary transactions without the risk of being blocked if you hit your credit card limit.

To keep you on top of the authorisation process, you could look for a payments solution that has timing and amount controls. That would allow you to set the maximum value of every payment and the date range in which the payment may be claimed; you’d only pay what you’ve agreed, when you’ve agreed to pay it. You might also want to consider a system that captures accounting data for every payment and assigns a unique transaction number to each one (such as an invoice number, project code or purchase order), which could not only cut down all those hours of manual reconciliation but also reduce the risk of fraud.

If you can find a system that automates your payment and reconciliation processes, you’ll be able to focus on growing your business and expanding your network, instead of drowning in paperwork.

 My £190m-turnover telecoms company has grown at lightning speed over the past four years, thanks mainly to acquisitions. But this strategy has put a lot of strain on our liquidity. How can I free up some much-needed cash to fund further expansion?*

 Congratulations on such stellar growth, particularly during a recession. Your acquisition strategy has given you a real market edge. Now it’s important to get a firm grip on your working-capital processes so that your company can continue its upward trajectory.

If you want to free up funds to acquire new businesses, a key way is to collect receivables quickly and ensure you are paying suppliers to term and not early. That could mean cash is available to you sooner and for longer. Another option could be to negotiate early payment discounts which can be hugely beneficial to both parties. Balancing your cashflow, which adds value to your customers and suppliers alike, is a perfect combination for growth and revenue generation.

Let’s look specifically at suppliers - you need to find a solution that balances the opposing payment interests of you and your suppliers.

Consider talking to your bank. Bond guarantees and indemnities, letters of credit and trade loans are all designed to support supplier/creditor payments.

Another idea is a web-based expense management solution that can be integrated into your existing payment processes. Put to work, it can actually increase your Days Payable Outstanding (DPO) without hurting your suppliers, reserving cash for priority purchases. The real benefit here is complete control over when you pay approved invoices; extended payment periods for you and accelerated payment for your suppliers. This way, you could turn your payables process into a competitive advantage and keep your suppliers on side.


*These are example questions

Want to discuss your cash-flow pressures? Call 0800 652 1279 or visit to find out more about how American Express Global Corporate Payments can help your business

Find this article useful?

Get more great articles like this in your inbox every lunchtime