Originally published in Manufacturer, ARB’s Manufacturing Industry newsletter.
In times of economic distress or industry uncertainty, cash flow issues can quickly bubble to the surface. Managing your manufacturing company’s cash flow is obviously critical during tough times, but good times can conceal cash flow issues. Proactive business owners and managers prioritize cash flow management, regardless of the current economic and industry environments. Let’s take a closer look at a few best practices for maintaining a positive cash flow.
Monitor and measure cash flow
You can’t manage cash flow unless you monitor and measure it. Most companies’ financial statements include a statement of cash flows. This report shows all the cash flowing in and out of your company. For example, your company may have cash inflows from selling products or services, borrowing money, and selling stock. Outflows may result from paying expenses, investing in equipment and repaying debt.
Typically, cash flow is organized in three categories: operating, investing and financing activities. The bottom of the statement shows the net change in cash during the period. To remain in business, companies must continually generate cash to pay creditors, vendors and employees.
In addition to evaluating historical cash flow, proactive managers project future cash flow under best-case, worst-case and most-likely scenarios and have contingency plans in place for each. Monitor your actual results against these projections to spot negative cash flow trends early and address them quickly.
Manage your customer base and receivables
Collecting from customers is key to maintaining strong cash flow, so evaluating and managing your customer base is critical. If your business is heavily concentrated in a handful of customers, consider options for growing that base. This could include expanding into new markets, developing new products or services, or exploring new marketing techniques. Concentration risks generally happen when one supply chain partner represents more than 10% of your transactions.
Regarding receivables, ensure that invoices are issued on a timely basis and that customers receive regular reminders before payments are due. Consider offering discounts for early payment. Ask for deposits for custom jobs and milestone payments for long-term projects.
Finally, consider factoring your receivables. Factoring simply means selling receivables to a financial institution or other third party (the “factor”) at a discount. You obtain quick access to cash or a line of credit, and the factor takes responsibility for collecting receivables from your customers.
Coordinate vendor and supplier payments
A concentrated supplier base can be just as damaging to your cash flow as a concentrated customer base. Failure of a major supplier can hinder your ability to fulfill orders or meet demand. Consider ways you can build a more diversified supplier base.
Contact your vendors and suppliers to coordinate the timing of payments. They may be willing to offer extended payment terms or early payment discounts.
Balance inventory levels
Managing inventory can be a delicate balancing act. On one hand, reducing stock levels of raw materials or inventories of finished goods can help boost cash flow. On the other hand, increasing certain inventory levels can help mitigate supply chain risks and avoid raw material shortages.
Focused inventory management can help you strike a balance between conserving cash and meeting customer demand. To free up cash and reduce storage costs, consider liquidating obsolete or slow-moving inventory.
Turn to your advisor
Managing your manufacturing company’s cash flow must be an ongoing priority. Paying attention to cash flow when times are good can enhance your business’s performance and better position it to weather the storm when the next economic downturn comes along. Contact a trusted financial advisor to learn additional best practices for managing cash flow.
This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. ©2026
Manufacturing Team Spotlight
David Jean is a Principal at ARB and the Director of Altus Exit Strategies. He focuses on financial accounting and consulting services for construction, real estate, and manufacturing companies. As the Practice Leader of the Succession Planning and Business Advisory Services Teams, David works with business owners who want to improve their business’s value before they sell through the Seven-Step Exit Planning Preparation™ process.
