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5 Strategies for Cash Flow Optimization in the Transportation and Logistics Industry

Cash flow in the transportation and logistics industry can be unpredictable. Long payment cycles, supply chain shortages and seasonality combined with a reliance on manual processes for collections are just a few factors that propel companies in the transportation and logistics industries to seek a more efficient process for their cash optimization.

The Importance of Cash Flow Optimization in Transportation and Logistics

Delays in payments force companies in the transportation and logistics industry to make difficult decisions. Since companies typically lack visibility into their A/R process and tools that allow them to accurately forecast payments, they aren’t equipped with the data to make the right answers to these difficult decisions. Without cash flow optimization, your company won’t have the cash it needs on hand to ensure business continuity in the event of a natural disaster, cyberattack or unforeseen financial issue. It also won’t be able to jump on an investment opportunity that would help it gain a competitive advantage in the industry.

What are the Different Cash Flow Optimization Challenges?

Since the transportation and logistics industry is composed of many multi-step processes and is highly dependent on the supply chain, it has been disrupted in recent years. It faces many challenges, many of which have been exacerbated since the global pandemic.

These challenges include:

  • Manual A/R collections processes. Manual dunning processes and spreadsheets are highly prone to human error and lack predictability, especially if your A/R team is trying to scale their collections or doesn’t work in one location. For example, it can also be very difficult to personalize dunning workflows and segment customers according to different industries, geographic regions, levels of customer risk, company size, etc. In addition, critical data, stored in places such as email communication and work management platforms, is lost when employees leave the company.
  • Increased market competition. As manufacturing in certain industries has started to move from offshoring to onshoring, new market players have emerged after the pandemic, opening up more opportunities for different players in the transportation and logistics industry. Companies with the ability to centralize data and offer greater visibility are also at a significant advantage in the marketplace.
  • Global supply chain shortages. Increasing freight rates, fuel prices, and container and driver shortages were challenges in this industry that became more acute after the pandemic. These challenges, combined with rising and unforeseen demand in products and goods, has led to greater disruption in the transportation and logistics industry.
    • Long payment delays. Payment terms in this industry can range from 30 to 60 and even 90 days, making it difficult for companies to gain visibility into their cash flow, leading to a longer cash conversion cycle. Payment delays also impact a company’s ability to efficiently allocate resources as the A/R team must focus more time on collecting current invoices rather than taking additional orders. Over time, this can impact a company’s growth.
  • Rising operational expenses. Investment in infrastructure, vehicle and repair maintenance combined with rising costs of fuel, expenses of salaries, permits and insurance all force companies to choose between investing in different resources rather than having the flexibility to use the cash to develop or expand their business in other ways.

5 Strategies for Cash Flow Optimization

Although these challenges are beyond the scope of your control, there are cash flow optimization techniques you can use to take charge of your cash flow. Once you’ve streamlined and automated your A/R process, you may find that it impacts your cash flow significantly and far more quickly, giving you options beyond simply acquiring new customers.

Here are a few steps you can take:

1. Eliminate manual collections processes

Once you’ve automated the collections process, you’ll have more time and resources for tasks that benefit from human involvement, such as strengthening your customer relationships. In addition, generative AI tools such as ChatGPT can be used in the collection process to personalize dunning workflows and deliver them at scale.

As a side bonus, you’ll also eliminate the human error involved in your current A/R process, gather data and insights and generate reports for management and other important stakeholders.

2. Accurately evaluate customer risk

Extending excess credit to high-risk customers impacts your cash flow. Having a system in place for setting credit limits that streamlines credit reports and audits to accurately assess customer risk, using your own internal metrics, helps you evaluate which customers should have their credit limits increased and which might need to have them decreased. It can also advise you of at which point in the customer lifecycle you should put these credit limits in place.

3. Analyze KPIs and cash flow metrics regularly

Your A/R management and team should regularly track accounts receivable performance metrics such as Days Sales Outstanding (DSO), average days delinquent (ADD), collection effectiveness index (CEI), and time-limited aging buckets to identify any issues quickly so that they can take preventative measures before it affects your cash flow. Cash flow forecasting can also help companies to accurately budget and have enough cash in reserve to mitigate financial trouble and invest in business opportunities when they arise.

4. Encourage timelier payments

Providing incentives for timely payments, simplifying the payment process, offering various options for payment, and communicating clear payment terms in dunning workflows can help prevent issues with outstanding or overdue invoices. In addition, automating the dunning process can systematically escalate workflows to proactively guard against late invoices. Having customers pay on time is one of the simplest ways to strengthen your cash flow.

5. Streamline disputes and deductions

Disputes can cause a hit to your cash flow while they wait to be resolved, a process usually managed by human A/R teams with many steps along the way that are all prone to human error. By implementing an efficient dispute management system with the help of an automated A/R invoice-to-cash management solution, you’ll be able to eliminate these errors, saving hundreds of hours every month. At the same time, an automated solution can identify any patterns in disputes from specific types of customers and develop a streamlined approach to resolving these disputes quickly to enhance your customer relationship and strengthen your brand.

How Gaviti Helps You Optimize Your Cash Flow Management

A/R teams relying on manual and repetitive processes in the transportation and logistics industry already face a number of challenges in optimizing their cash flow. By automating and streamlining your A/R collections process, you can eliminate tedious spreadsheets and manual processes and stop relying on A/R teams to chase customers for overdue invoices. With

Gaviti’s A/R invoice-to-cash management solution, customers have successfully reduced their average days delinquent (ADD) by 34%, decreasing their late receivables by 9% year over year (YoY).

Gaviti replaces these repetitive tasks with automated ones, such as dunning workflows that can be segmented and personalized, credit management that assesses customer risk and analyzes payment history to provide accurate payment forecasting. It also gives you a more efficient way of handling disputes, automatically prioritizing them while maintaining transparency at every step to your entire team. You’ll notify the proper stakeholders only when the need arises.

Best of all, Gaviti connects to any ERP, even those custom-built by your team, allowing you to assign different profiles and roles for each user – without the need for involvement from IT.

Want to learn more about how to use Gravity for faster receivables at scale? Book your demo here to get started.

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