Studies show that 90% of SME failure is due to poor cash flow. The most common kneejerk reaction that many food and beverage distributors turn to in poor cash flow situations is to concentrate on increasing sales. However, increasing your sales could actually create more harm for your cashflow than good.
EasyVend has put together 5 of the common causes of poor cash flow in the food and beverage industry and ways your business can fix them.
1. Overdue Payments
The biggest reason why food and beverage businesses experience poor cashflow is overdue payments. According to data recently released, the average amount of time it takes for an invoice to be paid in Australia is 26 days. Waiting almost a month for payment will instantly create an unhealthy cash flow position for your business. When invoices aren’t paid on time you are forced to find the funds in other ways, such as increasing loan amounts or cutting operational costs.
Tips to avoid:
The reason many customers don’t pay their invoices on time is due to the process. To get customers to pay their invoices faster, you need to make it easy for them. Making a payment should be convenient and hassle free, they shouldn’t need to manually type the payment in.
It’s a good idea to implement a payment gateway system with a linked pay now button for all invoices. This allows your customers to pay their invoice through their email at any time and on any device. All they need to do is add their card number and click submit.
2. Overstock
One of the more common reasons for poor cashflow in the food and beverage industry is overstocking on inventory. When you start to evaluate your business costings and discover your starting to slip into a financial whole, the first area you should evaluate is the amount of stock you have.
When you stock too many products, it forces you to spend large amounts of money. Suddenly, you will find yourself in a situation of hoping that the products sell quickly, or you will run the risk of the product expiring and not being able to sell it. Losses could be catastrophic!
Tips to avoid:
Constantly review your sales cycle. Use your business data to accurately evaluate the quantity of orders you will receive on a weekly basis. You will need to take into account seasonal change, price changes and economical changes. This will ensure you don’t overstock and fall into a cashflow hole.
Accurate inventory management is so important. The best way to do this is through a food and beverage management software. Many businesses may be reluctant to invest money in a software solution but software’s such as EasyVend will give you an accurate recording and reporting of live stock and the different sales cycles.
3. High business expenses
Failing to manage your business operations accurately you will quickly find yourself in a poor cashflow situation. The biggest operational costs for food and beverage businesses include your rent, Internet, electricity, and phone bills. While these costs are essential and often cannot be avoided.
What can I do:
To stay on top of all your expenses you should frequently review all your business expenditure. You should document all your overheads and review them month on month. On top of this you should seek alternatives who could provide you with a cheaper solutions.
4. No financial planning
As the expression goes if you fail to plan – you plan to fail. If you don’t accurately budget, forecast sales, and evaluate your overheads you will quickly be in a poor financial state.
Tips to avoid:
You need to create an accurate financial plan! To support the accuracy of your plan you should run it by a third party i.e. your accountant.
5. Inaccurate product pricing
At the end of the day the revenue you bring in will determine the success or failure of your business. Your product pricing will affect your cash flow, If your price is too high, people won’t buy your products, but if your pricing is too low, you won’t be able to cover the costs of operating your business.
Tips to avoid:
Review the industry standard pricing as well as the pricing of your competitors. Make sure your prices are accurate to your customers expectations. Getting a customer through your doors is one task but retaining customers is a whole other ball game.
We hope you enjoyed this post, to read more of our helpful guides and industry news check out our blog here.
Where EasyVend can help?
EasyVend by Jeal is a complete food and beverage management software that automates the everyday tasks of running food and beverage business.
Using the latest technologies, EasyVend eliminates frustrations and time-wasting administration tasks to make business more efficient and streamlined.
With stock management, integrated accounting, payment gateway, online ordering, invoicing, receipting and so much more. EasyVend is the go-to solution for all food and beverage distributors in Australia.
Contact us today for a FREE no-obligation demo of EasyVend.
Improve Accounts Receivable to Get Paid Faster
Effective cash flow management for food and beverage businesses starts with getting paid on time. You need to make it easy and automatic for your customers to pay you, and you need to make sure no invoice slips through the cracks unnoticed. This means tightening your payment terms, invoicing the moment a delivery is confirmed instead of batching everything at month-end, and following up on overdue accounts on a set schedule rather than waiting until your accountant flags a shortfall.
Here is what this looks like in practice for a food and beverage distributor. Say you deliver stock to twenty cafe accounts across the week, but you only run invoices once, on the last business day of the month. Every one of those deliveries sat on your books unbilled for up to thirty extra days before the payment clock even started. That avoidable delay can often be reduced by invoicing more frequently. Invoicing on delivery or at least weekly allows the payment period to begin sooner and can improve cash flow in food distribution.
Australian small businesses currently wait an average of 24.1 days to get paid after issuing an invoice, and payments land an average of 6.9 days past the agreed due date, according to Xero Small Business Insights. That gap between when payment is due and when it actually arrives is where most food and beverage distributors lose cash, because suppliers, staff, and fuel bills do not wait an extra month just because your customers do.
A few practical steps make a real difference to accounts receivable management
- Shorten your payment terms where you can. Thirty days is standard, but if your margins are tight on perishable stock, seven or fourteen days protects you far better.
- Automate your reminders. A friendly nudge a few days before the due date, followed by a firmer one once it is overdue, catches most late payments before they turn into a real problem. You do not need to be the one sending it.
- Run a credit check before you extend terms to a new account. A single bad debt from an unvetted customer can wipe out the margin earned from months of smaller, reliable orders.
- Offer a small early payment discount for accounts that pay within seven days. It may cost you a percentage point or two, but that is often cheaper than the time spent chasing the same invoice for six weeks.
A payment gateway system with automated invoicing can help reduce these administrative delays. When invoicing, reminders, and reconciliation run without someone manually chasing them, overdue invoice management stops depending on whether someone in your office remembers to follow up that week.
Reduce Your Cash Conversion Cycle
Your cash conversion cycle, or CCC, tells you how many days pass between paying for stock and actually collecting cash once it sells. Reducing this figure can improve cash flow by limiting the time money remains tied up in inventory and unpaid invoices.
The formula is simple. CCC equals Days Inventory Outstanding (DIO) plus Days Sales Outstanding (DSO) minus Days Payable Outstanding (DPO). DIO shows how long stock sits before it sells. DSO shows how long customers take to pay once it does. DPO shows how long you take to pay your own suppliers. The shorter your DIO and DSO, and the longer your DPO, the less time your cash spends stuck in the middle.
Here is what that looks like with real numbers for a mid-sized food distributor.
| Metric | Example figure | What drives it |
| Days Inventory Outstanding (DIO) | 12 days | How fast perishable and packaged stock turns over |
| Days Sales Outstanding (DSO) | 24 days | How quickly customers pay after invoicing |
| Days Payable Outstanding (DPO) | 20 days | How long your suppliers give you to pay |
| Cash Conversion Cycle | 16 days | 12 + 24 minus 20 |
That sixteen-day figure shows how long your cash stays tied up between paying for stock and getting paid for it. Now imagine you push DSO down to 18 days through faster invoicing and automated follow-ups, and you negotiate an extra week from a key supplier to stretch DPO to 27 days. Your CCC drops to just 3 days. This represents a substantial improvement in cash availability. For a business moving even a modest amount of stock each month, that shift frees up tens of thousands of dollars that would otherwise sit in unsold inventory or unpaid invoices.
For food and beverage distributors, DIO deserves the closest attention, since products with a limited shelf life cannot always be held until demand increases. This is why accurate, real time inventory management matters just as much for your cash conversion cycle as it does for avoiding wasted product, a point covered earlier in the section on overstocking. Working capital for food distributors rarely comes down to how much money you have. It comes down to how much of that money is stuck moving through inventory and unpaid invoices instead of sitting ready to use in your account.
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FAQs
How can food and beverage businesses improve cash flow?
The fastest results come from three areas working together. Get invoices out and paid faster, keep inventory levels matched to actual demand instead of guesswork, and automate the admin tasks that eat up time without adding value. A distributor that fixes even one of these areas, such as moving from monthly to weekly invoicing, usually sees a noticeable improvement within a single billing cycle.
What causes cash flow problems in food distribution?
Most cash flow problems in food and beverage distribution trace back to overdue payments, overstocked or expired inventory, high fixed overheads, poor financial forecasting, or pricing that does not cover real operating costs. These issues rarely appear one at a time. A business dealing with slow paying customers, for example, often compensates by overordering stock to avoid running short, which then ties up even more cash while that stock waits to sell.
How can food distributors get paid faster?
Invoice immediately after delivery rather than batching invoices at month end, shorten payment terms to something realistic for your margins, and automate payment reminders so follow up does not depend on someone remembering to do it. Adding a pay now link directly on the invoice also removes the friction of a customer having to log into a separate system just to pay you.
How does inventory affect cash flow in food distribution?
Every dollar sitting in unsold stock is a dollar that is not available to pay suppliers, staff, or rent. This problem is sharper in food and beverage than in most industries, since product can expire before it sells, turning tied up cash into a straight loss. Matching order quantities to actual, data backed demand instead of habit or guesswork is the single biggest inventory related fix for cash flow.
What is the cash conversion cycle for a food distributor?
The cash conversion cycle is the number of days between paying for stock and collecting cash from selling it, calculated as Days Inventory Outstanding plus Days Sales Outstanding minus Days Payable Outstanding. A shorter cycle means your cash spends less time locked up in inventory and unpaid invoices, and more time available to reinvest in the business.
How can automation improve cash flow for food distributors?
Automation removes the manual delays that quietly stretch out your cash conversion cycle, such as invoices left unsent for days, reminders that never get sent, or stock counts that fall out of date before anyone checks them. Distributors using food and beverage management software to automate invoicing, payment reminders, and stock tracking typically see faster payment collection and fewer overstocking mistakes, since automated alerts can help busy teams identify overdue invoices and stock issues sooner