what are some ways to improve cash flow? For context, the client is a biopharma company that makes pharmaceutical compounds.
I don't have a biz. background so could someone please provide examples of how to brainstorm ideas for this?
Upon googling, I saw there's operating cash flow, investing cash flow and financing cash flow, but what would be concrete examples of increasing cashflows under each? Or is there a better way to setup drivers of cash flow?
1) could you pls explain how reducing inventory levels helps cash flow? Is it about reducing warehousing costs?..I thought cashflow was about increasing 'cash' and reducing 'credit' or something along those lines, sounds like it's mostly about increasing profits. 2) Also for getting early accounts receivable, is there anything you can do besides changing terms of the payment (eg 30 days to 10 days). 3) Same for delaying payment to supplier, can you just leverage goodwill, or say you'd order more next time or promise to extend contracting period etc..?
If you have less inventory you have less capital "stuck" on inventory. This is actually more to free up cash than to reduce costs (although it has both effects). As I said, improving cash flow is part both about profit (revenues - costs) and part about the timing of your cash inflows and outflows. If you anticipate inflows and postpone/minimize outflows you will be at a better position. So reducing inventory doesn't necessarily mean you will have lower costs, but it means you will buy later your supplies, and you will postpone labor until you need it (i.e., instead of incurring those costs now, you only incur them close to the selling moment).
There are other things you can do to pay later / receive earlier. One is to change payment terms as you mention. Other can be to find suppliers that are closer to you (well, this is actually more about reducing safety stock levels). I am sure there are other things that can be done in this regard, but honestly I can't think of one that would be particularly relevant for a life sciences company. As far as I know the issue in this industry is much more about the multi-year investments one has to do before seeing any revenue; and about making the most out of the IP one already has.