How to Improve Working Capital via NetSuite

     We're here today to talk about how to improve working capital using NetSuite. 

     In the midst of the COVID-19 pandemic, increasing working capital is vital to keep your business running. Our NetSuite customers have been laser-focused on cash flow, so we worked with them to deploy strategic automation processes within NetSuite that optimize their working capital. 

     When employees are working from home, businesses have less oversight and control. It's important to keep a close eye on business metrics to identify trends and pivot strategy as needed. So, we created this ultimate guide on how to help you improve working capital with NetSuite's incredible features/ 

     We've enlisted the help of Josh LaSov — a NetSuite expert who's helped over 100 businesses implement NetSuite, from startups to Fortune 1000 companies. 

     Josh says there are a couple of key strategies he's seen his customer base successfully implement over and over again. 

These NetSuite tactics, which we discuss in-depth below, are going to help you: 

  • Increase cash flow 
  • Optimize inventory management 
  • Streamline accounts payable 
  • And keep more cash on hand!  

     Here's what we've seen leading NetSuite customers deploy over the last year.

3 Ways to Increase Cash Flow with NetSuite 

     COVID-19 changed a lot about how people conduct business. On the consumer's side, online shopping became even more prevalent than before. On the business side, you need the ability to pivot quickly, maintain strong oversight, and make sure all bills are paid. What all of this boils down to is having a strong cash flow. 

We're going to cover three ways you can use NetSuite to increase cash flow: 

  • Decrease time to invoice by setting up invoice automation 
  • Collaborate on invoice management by checking the communications subtab 
  • Build automated workflows to collect overdue invoices and follow up with customers

     With these processes in place, you can scale accounts receivable without adding headcount, reduce collections, and decrease outstanding invoices. Here's how to set them up. 

1. Decrease Time to Invoice Using NetSuite Automation 

     How long does it take you to create an invoice? Do employees ever forget to invoice customers on time, leaving cash on the table?

     What if you didn't have to create any invoices at all? NetSuite's invoice automation tool automatically generates invoices as needed, so it's one less thing you have to worry about. 

     There are a few ways you can go about this: some NetSuite customers prefer to have an invoice generated automatically when an order is filled. Others set up alerts that go off if there's too long of a gap between a sales order creation and invoice creation.  

     This keeps time to invoice as low as possible, so your business doesn't need to wait even longer to collect cash from customers. 

     "At the end of the day, when you look at how long it takes you to collect cash, you also have to add in the time it takes you to create the invoice," Josh says. 

     With NetSuite, our development team can set up custom workflows or scripts for automatic invoice generation. Or, if you still prefer to send invoices yourself, we'll set up alerts so cash can be received as quickly as possible. 

2. Stay Up to Date on Accounts Receivable 

     The next important part of optimizing cash flow is staying on top of accounts receivable. Now that employees are working remotely, it's vital to stay on top of each transaction, especially if multiple people are involved.

     Instead of trying to guess what's going on with an invoice, or reaching out to multiple people for an update, NetSuite has a simple solution: the communications subtab. 

     View the communications subtab on an invoice within NetSuite to see the latest communications and notes. If you're checking on why an invoice hasn't been collected, you might get some answers here. For example, you might see a collections notice if the invoice is past due (as seen in the screenshot below), or a user note that explains why payment hasn't been made yet.  Communication sub-tab

3. Follow Up with Customers (or Let NetSuite Automate This!) 

     "The last thing I want my team to do all day every day is to follow up with people," Josh says. One huge takeaway Josh learned from his customers is that automating follow-up messaging gets people to pay their bills. 

     Similar to how it can take five to seven interactions to close a new lead, it can take the same amount of time to collect outstanding payments. 

     To collect cash as quickly as possible, we use automated workflows in NetSuite. You can set up workflows that send out email reminders when an invoice is overdue. The screenshot below shows an example of one of these invoice collection workflows. 

Invoice collection workflow

     This workflow only starts after an account is 30 days overdue. Then, it sends out the first notice, and continues sending emails if the invoice remains overdue. You can also set it up to remind a staff member to make a phone call to this customer or place credits on hold. 

     Our customers who set up automated invoice collection emails are seeing improved collection times. Plus, they spend less time chasing down money owed to them since everything is automated! 

How to Save Money on Inventory Management 

     Another important component of improving working capital with NetSuite is saving money by properly managing inventory. This includes everything from optimizing re-ordering to reviewing NetSuite's purchasing recommendations. 

     "It's amazing how we still see so much inventory management being done in Excel," Josh says. This isn't to say that there aren't certain things you'll still do in Excel, but it's not the best overall solution for inventory management. 

     The key theme for companies with successful inventory management is that they're driven by data. We've seen companies who manage inventory in Excel and make decisions off of what they feel like the inventory levels should be. However, once we compare that to the actual data from NetSuite, there are almost always improvement opportunities. Some companies optimize inventory carried by as much as 20% by using NetSuite! 

     Optimizing inventory management can provide you with more working capital. All you have to do is let NetSuite automate the process for you! Josh's main piece of advice when it comes to inventory management is to stop making non-data-driven decisions and let NetSuite do its job. Here's how. 

Optimize Inventory Purchasing 

     NetSuite has a few different options for purchasing inventory, so it's important to choose what's best for your business and be as thorough as possible. 

In NetSuite, there are two ways to purchase inventory: 

  • Reorder point - reordering inventory when it gets down to a certain quantity. This is considered a reactive way to manage inventory levels. 
  • Time-phased - this is a more sophisticated method that we won't get too in-depth on today. All you need to know is it's a proactive way to manage inventory by using demand planning. It takes into account historical sales forecasts, committed sales, and CRM data from sales reps. 

     Regardless of which option you choose, at a certain point, NetSuite will tell you what you need to reorder when. As seen in the screenshot below, you can set up criteria for reorder points by manually entering them or letting NetSuite auto-calculate them. This includes preferred stock level for specific locations, safety stock level, etc. NetSuite reports

     Keeping accurate inventory numbers helps your team maintain a reactive approach. Even while working from home, this inventory automation allows your team to make better, timely inventory decisions. You can even set up specific inventory reports they can check to see exactly what's going on with specific products, locations, and vendors. 

Pay Attention to Purchasing Suggestions on the Order Items Screen

     The order items screen is where all the magic happens! A lot of companies gather around this screen to see what NetSuite is suggesting and why. As seen in the screenshot below, NetSuite shows data such as your reorder point and preferred stock levels. From here, you could either take NetSuite's recommendations on the repurchase quantity or enter your own numbers.  Adjust reorder point, stock level, and quantity

     This screen is where we're seeing inventory management improvements. Whether you're decreasing products on hand by 2-5% or as much as 20-30%! 

     So, instead of procurement teams spending all day in Excel trying to figure out what to order, NetSuite sends refined information. This helps the company save time and see improvements by making data-driven inventory decisions. 

3 Ways to Streamline Accounts Payable 

     In addition to inventory management, accounts payable is another vital area to focus cash flow optimization efforts on. Yes, you can increase cash flow to have more money, but you can also work on tightening up where you're spending money. 

     There are a couple of key strategies Josh has seen clients deploy in NetSuite to improve the performance of accounts payable. NetSuite's accounts payable automation can help you grow your business without adding more staff. 

1. Negotiate Terms with Vendors 

     NetSuite makes it easy to keep track of terms you negotiate with different vendors. There are a few values within the financial subtab of vendor records every business should have filled out. 

Check vendor records in NetSuite for: 

  • Terms - Make sure terms have been established with each vendor. In this example, you'll see the terms are 2% 10 net 30. 
  • Credit limit - Credit limits should be negotiated with each vendor. Here, you'll see a credit limit of $10,000. 
Edit terms and credit limit

     Adding established terms and credit limits to NetSuite's vendor records helps automate the payment process. For example, if you plan to pay within the 30 days allotted in the terms, NetSuite can automate the 2% discount. 

     While it might seem simple, automating this process means there's one less thing your employees have to worry about! Plus, it can help drive down payments and keep overspending in check.

2. Control Purchasing 

     "A lot of companies aren't controlling purchasing as well as they could," Josh says. 

     There are two strategic ways to control purchasing within NetSuite: purchase contracts and setting up workflow automation for the approvals process

Purchase Contracts: Manage Vendor-Negotiated Terms 

     NetSuite's purchase contracts allow you to enter terms you've negotiated with vendors. Josh has seen a lot of customers overwhelmed by the task of managing term negotiations with multiple vendors. They didn't know how to manage it in excel and lacked software capable of keeping track of it. 

     Luckily, NetSuite allows you to automate virtually every aspect of a purchase contract, including any negotiated vendor terms. This helps you keep purchasing costs down — when you have NetSuite, you don't have to worry about the logistics of managing multiple vendor contracts. It's simple, easy, and highly effective! 

     For example, with my vendor, I have minimum and maximum amounts, with start and end dates for contracts. When I'm buying this item I can see my pricing schedule. This is a very basic example, but you can see that as quantities go up and orders increase, the rate (or unit price) goes down.

Control Spending with Workflow Automation 

     Workflow automation is another great way to control spending. A lot of companies purchase inventory willy-nilly — they use credit cards, expend budgets because they can, or maybe don't even have a budget. 

     NetSuite allows you to set up automated workflows regardless of how you purchase inventory through a feature called a purchase order workflow. 

The screenshot below shows an example of this workflow: Purchase order workflow

Items and criteria you can add to a purchase order workflow include: 

  • Order initiation
  • Pending approval 
  • Approved
  • Rejected 
  • Dollar amount thresholds 
  • Item type 
  • Approval from specific managers 

     You'd be surprised how much the purchase order workflow can help you control spending and retain cash. Before an employee puts in a large order, you can set up a workflow so management has to approve it first, or limit orders with certain dollar amount thresholds. 

3. 3-Way Matching 

     Many customers said NetSuite's 3-Way matching workflow has helped them out a lot. This makes sure the purchase order contains the same data as the item receipt and invoice from the vendor you're paying. NetSuite makes sure everything matches and validates items like tolerance differences, approval processes, etc. 

     For example, NetSuite might flag a bill for re-approval if the cost went up or you're buying a larger quantity than normal. Instead of flying under the radar, it makes sure everything stays within budget. 

Need Help Using NetSuite to Improve Working Capital?

     Whether you're looking for a NetSuite implementation partner or want to optimize your existing setup, the experts at SCS Cloud can help you! 

     Controlling costs in NetSuite doesn't have to be overwhelming, and it's never too late to start. 

     Contact us today for a FREE consultation!

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