How To Prepare Your Business and ERP for an Economic Slowdown

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Concerned about a potential recession? You're not alone. As news of an economic slowdown continues to make headlines, it's natural for business leaders to feel anxious about its impact. However, being proactive and preparing for the worst can help your company weather the storm and even capitalize on opportunities.

At Innovia, we've helped our customers take steps to safeguard their cash flow, optimize their inventory, and stay focused on the future. Here are a few strategies you can adopt to prepare your business for a possible downturn:

1. Start Prioritizing Invoicing and Collections Now, Rather Than Waiting Until Cash Flow Becomes Tight.

Examine your invoicing and collections process and aim to make it as automated as possible. ERP systems like Microsoft Dynamics 365 Business Central can assist with automatic invoicing and provide interactive dashboards to track any orders that need manual invoicing. A quick payment starts with a timely invoice.

Pay attention to payment terms. This seems basic, but it is often overlooked. Evaluating a customer's creditworthiness by paying a small fee is a worthwhile investment. Once you have assessed the customer's ability to pay, set payment terms that reflect a reasonable timeline for payment. Business Central offers various options, including AI and Machine Learning-based features, to predict potential payment delays from customers.

After the invoice is sent, the next step is to encourage prompt payment. In addition to payment terms, you can also make it easier for customers to make payments by providing a payment portal, electronic payment options such as ACH drafts, and payment links on invoices and statements. Research shows that invoices and statements with "pay now" links can reduce past-due accounts by almost 25%.

If all else fails, make a phone call and document the conversation. It takes a certain type of person to call for payment, but if previous steps have not worked and the customer is overdue, don't hesitate to make the call and find out the status of the payment. Document the discussion in your system for reference and to hold the customer accountable for any promises made.

2. Consider Cutting Ties With Problem Customers.

While it can be difficult to part ways with customers after putting in the effort to win them over, it is necessary to distinguish between valuable and problematic customers. You may be surprised to find that a customer who you thought was performing well is actually not as profitable when considering the time and resources required to handle their complaints, unreasonable demands, slow payments, and other hindrances to their value to your business.

Establish KPIs to objectively assess customers and eliminate emotional bias in the decision-making process. Most ERP systems include a customer rating system that can be used to analyze data and make informed decisions.

Evaluate the cost-benefit of your relationship with the customer. There may be some customers who, despite spending significant amounts of money, are simply more trouble than they are worth. Consider the following questions when determining the value of a customer:

  • How many complaints have you received from this customer compared to your average feedback?
  • Do they pay on time?
  • How much time and effort is required from your sales or customer service team to maintain the customer's orders?
  • What is the potential for cross-selling or future growth with this customer?

 

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3. Start Building Strong Relationships With Your Vendors.

It's important to start a conversation about payment terms with your vendors before everyone else does. You can ask for a review of your account and make a case for why your business deserves favorable consideration. Consider the following factors:

  • How long have you been a customer? A long-standing relationship with a vendor carries weight.
  • What is your record of returns and other issues? If you have a good track record of working in good faith with the vendor, they may consider you to be a more valuable customer than others.
  • How many of the vendor's products or services do you use? The more products or services you purchase, the more valuable you become to the vendor.
  • Do you pay your bills on time? A consistent record of timely payments is a powerful argument for improved payment terms.
  • Can you commit to a certain level of business for the next 12 or 24 months? Long-term arrangements help vendors plan their business and save costs, which can increase the chances of better payment terms or price concessions.

4. Optimize Your Inventory for Maximum Efficiency and Savings.

In order to save money and stay ahead in the current economy, it's essential to have a strategic view of your inventory levels and purchasing decisions. Here are some tips to help you optimize your inventory.

  • Regularly review planning parameters in your ERP system. Keep up with changes in customer buying habits and market preferences to avoid slow-moving or outdated inventory.
  • Implement a forecasting system. Don't rely on a simple spreadsheet. Invest in a mathematical algorithm-based forecasting system to inform purchasing decisions and achieve more favorable pricing.
  • Collaborate with your vendors. Work with them to improve pricing by ordering more efficiently or on a predictable schedule, and use your forecasting system data to negotiate better deals.

5. Streamline Your Operations for Efficiency.

Undertake a Value Stream Mapping exercise to identify any inefficiencies in your current processes. Consider if the customer would want to pay for the process if they were aware. Streamlining processes can help optimize your operations and reduce costs.

  • Value Stream Mapping. This exercise can take anywhere from 3-12 weeks, but it is recommended before making any investment in your system. Remember, software applied to a flawed process will only make the wrong actions faster.
  • Optimize your ERP system. Regularly review your system to ensure it is being leveraged efficiently. This is an important step to maintain technology as a strategic advantage.
  • Automate tasks. Consider ways to automate tasks to reduce the number of personnel needed. While reducing the workforce may be uncomfortable, it is necessary to stay cost-effective, especially during challenging financial times. Automating certain tasks allows employees to focus on higher-value tasks and can save costs on personnel expenses.

The saying goes that economists have only accurately predicted 3 out of the last 10 recessions. Although it is important to prepare your business for potential economic downturns, it is not necessary to live in fear. Most of our customers at Innovia tell us that business is thriving, which is a positive sign. So, implement the steps mentioned above to enhance your financial stability and prepare for any future economic challenges. Keep in mind that ships are safe in the harbor, but they are meant to sail the seas. Let's strive toward a more productive and successful business.

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