Improve free cash flow

Unlocking Free Cash Flow

We have 3 ways of increasing free cash flow. Obviously, we could start to increase our accounts payable and we could do that something simple like just paying our bills later. But no one’s going to thank us for that. So how can we use data to achieve the same thing?

We could also decrease our accounts receivable. How can we use data to get our customers to pay more quickly? 

Thirdly, how do we use data to reduce our inventory? How can we get rid of that capital that’s locked up in inventory and churn that more quickly to get us more revenues? Obviously, it’s not just the money we spend on inventory. There’s also loss, wastage, theft and insurance, all sorts of other costs that go along with storing inventory and keeping things on the books.

Increase Accounts Payable with data

As we said for accounts payable, you could just choose not to pay your bills, but you’re not going to get very far with that strategy. Let’s look at how you can use data to increase accounts payable.

Lastly, you could use data to identify overpayments or duplicate invoices, realise early payment or promotional discounts, or be issued credit by your suppliers.

Decrease Accounts Receivable with data

Where can data be used to decrease your accounts receivable? Well, there are some obvious candidates.

Clearly, any time you can increase the accuracy of the invoices you’re sending out, you make it easier for your customers to pay you on time because they don’t need to dispute things they think they’ve been overcharged for, and you’re not going to undercharge them so you capture the revenue that you actually are owed.

Having solid customer master data and contact information allows your finance team to send timely invoices to the right person and chase them down for payment efficiently.

You can also dive into historical data about payment performance to look for customers that might be struggling in order to help you prevent bad debts from accruing.

You can create tight alignment between the customer and product order and billing master data, which will help you reduce invoice disputes in the first place.

Lastly, look at historical dispute data across different invoices. Where do these disputes commonly happen, and what data do your finance team need in order to resolve them more quickly? Because disputes that drag on risk turning into write-offs.

Decrease Inventory with data

Decreasing inventory is an area where data is uniquely suited to help.

You could start by getting great data regarding the products you have on hand and the inventory you need to produce any finished goods.

Having solid materials master data management can dramatically improve your ability to identify the products you need in stock versus those you already have.

You can standardise different products, so I think we’ve given the example before of ibuprofen versus Advil, where you’ve got a brand name for one and it’s the generic for another. But actually, these are the same thing. And if you’re able to view them as the same thing, you can stock them as the same thing and you don’t need to buy both.

If you consolidate terminology it allows you to only stock what you need. Again, this drives up economies of scale and allows you greater bargaining power, or it allows you to buy the cheaper, generic product that does exactly the same thing.

Finally, you can look at your demand data signals from your customers and use this to improve your supply chain forecasting and deliver things when you need to deliver them.