Against the backdrop of inflation concerns, supply chain vulnerabilities, and evolving consumer dynamics, food and agricultural CFOs are placing greater emphasis on cash flow posture as a critical factor in pursuing sustainability and growth. With profit margins already tight, we understand that maintaining stable cash flow is essential to ensuring the long-term sustainability of the business.
““The biggest concern for CFOs in the food and agricultural industry is whether their companies have the financial wherewithal to achieve their goals not only now, but one year, two or three years from now.” Julius Choi, Regional Vice President, Western Region, Allianz Trade North America, said: World’s largest trade credit insurance provider “The biggest challenge they face is whether their cash flow forecasts are accurate and whether there is enough supply to meet their goals.”
The role of the CFO has transformed from simply overseeing financial reporting to a strategic partner shaping the future of the organization. This change requires a comprehensive understanding of the factors that affect cash flow and strategies to mitigate risk to help businesses succeed in increasingly complex markets.
Three key factors causing cash flow concerns for food and agricultural CFOs
There are three important factors that make effective cash flow management a priority for CEOs.
1. Volatility of raw material prices
Fluctuations in raw material prices can have a significant impact on food and agricultural products, making budgeting and forecasting difficult. Buyers may be financially affected by fluctuations in other commodity markets due to shared supply and demand factors or by the impact of external factors such as weather events, pests or diseases on crop production.
2. Supply chain disruption
The vulnerability of supply chains has become paramount since the pandemic, and any volatility can have a negative impact on cash flow, especially for agricultural products. For example, transportation disruptions can jeopardize the integrity and freshness of perishable product and food shipments, leading to potential spoilage and missed sales opportunities.
3. Seasonal demand volatility
Many food products experience seasonal demand fluctuations, complicating cash management efforts. Inventory peaks are followed by troughs.
Oregon Berry Packing, specializing in selling to international buyers, has a firm understanding of the seasonality of premium crops. Although we rely on Allianz Trade Credit insurance as a backup on many levels, we appreciate the flexibility to tailor coverage to provide the protection our company needs. However, this is only possible when necessary. “Trade credit insurance is like a spigot that you can turn on or off,” says Terry Fasel, director of international sales for Oregon Berry Packing.
Cash flow improvement strategy
As your company aims to manage cash flow, make sure you’re using these five best practices.
1. Implement a solid financial plan
By developing detailed financial forecasts that take into account variable costs and seasonal trends, CFOs can forecast cash flow needs and make informed decisions to adjust spending to accommodate fluctuations.
2. Optimize supply chain management
Strengthening your relationships with your suppliers can help you ensure better prices and reliability. Consider diversifying your suppliers to reduce disruption-related exposure and leverage protections such as trade credit insurance to provide confidence as you explore new buyer opportunities.
3. Focus on cost management
Regularly reviewing your operating expenses to identify areas for cost savings and tighter controls on areas such as labor and overhead can help protect your cash reserves.
4. Improved accounts receivable process
Streamlining your invoicing and collections processes can shorten the time from sale to cash in hand, and offering discounts for early payment can encourage customers to pay faster. Additionally, having a safety net like Allianz Trade Credit Insurance allows brands to partner with small traders and offer attractive payment options. Fasel found that these local companies were accustomed to paying in cash by the pallet, but thanks to Allianz Trade’s support, he was able to extend the same types of terms enjoyed by larger companies.
5. Work with a partner who can help you manage risk
Choi believes that one of the most important benefits added to his service is the ability to forecast cash flow. “We help companies manage large-scale ‘what if’ scenarios that could hinder their growth or even put them out of business,” he says.
For example, Del Campo Supreme, Inc., a Nogales, Arizona-based distributor of high-quality tomatoes and peppers, knows that even the healthiest companies can be exposed to significant payment risk from customers that manage their own cash flow issues. .
“Our industry has changes and challenges every day, so it’s hard to know if a client will fall apart overnight,” said Cathy Jimenez, credit manager at Del Campo. With Allianz Trade Credit Insurance, the company has found a proactive strategy to help offset risk and protect its industry-leading market share.
“CFOs are constantly assessing risks to the business and working to eliminate or reduce them to help achieve future goals,” says Choi.
Would you like to benefit from a partner like Allianz Trade Credit Insurance who can help you identify the best customers and markets for your business while improving your financial health and protecting your cash flow from bad debt losses?
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