Against a backdrop of inflation concerns, supply chain vulnerabilities and evolving consumer dynamics, food and produce CFOs are placing heightened emphasis on cash flow health as a critical factor in their quest for sustainability and growth. With profit margins already thin, they are keenly aware that maintaining a stable cash flow is essential to ensure the long-term sustainability of their businesses.
“I believe the top concern weighing on CFOs in the food and produce industry is whether their company is going to have the financial wherewithal to meet their objectives, not only today, but a year or even two or three years from now,” says Julius Choi, Regional Vice President, Western Region, for Allianz Trade North America, the world’s largest provider of trade credit insurance “The biggest challenge they’re facing is whether their cash flow prediction is accurate, with ample supply to meet their objectives.”
The role of the CFO has transformed from merely overseeing financial reporting to becoming a strategic partner in shaping the organization’s future. This shift necessitates a comprehensive understanding of the factors influencing cash flow and strategies that will mitigate risks while positioning companies for success in an increasingly complex market.
Three Key Factors Driving Cash Flow Concerns for Food and Produce CFOs
With effective cash flow management top of mind for CEOs, here are three significant factors at play.
1. Volatile commodity prices
Fluctuations in commodity prices heavily impact the food and produce, which can make budgeting and forecasting difficult. Buyers can be financially impacted by the swings of other commodity markets due to shared supply and demand factors or because of the effect of external forces—such as weather events, pests or diseases—on crop production.
2. Supply chain disruptions
Since the pandemic, vulnerabilities in the supply chain have been front and center, and any volatility can negatively impact cash flow, particularly in the case of produce. For example, transportation disruptions can jeopardize the integrity and freshness of perishable products and food shipments, leading to potential spoilage and, therefore, a missed sales opportunity.
3. Seasonal demand variability
Many food products experience seasonal demand fluctuations that complicate cash management efforts, with periods of peak inventory followed by a trough.
Oregon Berry Packing, which specializes in selling to international buyers, obviously understands the inherent seasonality of its premium crop. While it relies on Allianz Trade Credit insurance as a backstop on many levels, it appreciates the flexibility of adjusting coverage so the company has the protection it needs—but only when needed. “Trade credit insurance is like a spigot that you can turn on and off,” says Terry Fasel, Oregon Berry Packing’s Director of International Sales.
Strategies for Enhancing Cash Flow
As your company aims to manage cash flow, confirm that you are using these five best practices:
1. Implement robust financial planning
By developing detailed financial forecasts that account for variable costs and seasonal trends, CFOs can anticipate cash flow needs and make informed decisions to align expenditures with fluctuations.
2. Optimize supply chain management
Strengthening relationships with suppliers can ensure better pricing and reliability. Consider diversifying suppliers to reduce exposure associated with disruptions and tapping safeguards such as trade credit insurance to provide confidence as you explore new buyer opportunities.
3. Focus on cost control
Regularly reviewing operational expenses to identify areas for cost reduction and implementing tighter controls in areas such as labor and overhead costs can help protect cash reserves.
4. Improve accounts receivable processes
Streamlining invoicing and collections processes reduces the time between sales and cash receipt, and offering discounts for early payments can incentivize quicker customer payments. In addition, having a safety net like Allianz Trade credit insurance allows brands to partner with smaller traders and offer them appealing payment options. Fasel finds these local companies are used to paying in cash by the pallet, but because of Allianz Trade’s support, he can extend the same types of terms that larger companies enjoy.
5. Work with a partner who can help manage risk
Choi believes one of the most significant added advantages to its services is the ability to predict cash flow. “We help them manage the big ‘what if’ scenarios that could hinder a company’s growth or even ultimately put them out of business,” he says.
For example, Del Campo Supreme, Inc., a distributor of high-quality tomatoes and peppers based in Nogales, Arizona, knows that even the healthiest companies can be exposed to considerable payment risks from customers who are managing their own cash flow issues.
“Our industry brings daily changes and challenges, which makes it hard for us to know if a customer will collapse overnight,” said Cathy Jimenez, Del Campo’s Credit Manager. With Allianz Trade credit insurance, the company has found a preemptive strategy to help counterbalance risk and protect its industry-leading market share.
“A CFO is constantly evaluating the risks to their business and working toward eliminating or reducing the amount so they can meet their objectives in the future,” Choi says.
Would you benefit from a partner such as Allianz Trade credit insurance, who can help identify the best customers and markets for your business, while improving your financial health and protecting your cash flow from bad debt losses?
Try Allianz Trade’s ROI calculator to explore how an investment in trade credit insurance can bolster your bottom line.
