These days, there's an abundance of literature about profitability (or lack thereof), but little about cash flow, its management and its importance. In recent years, printers, distributors, sales reps and even customers have become painfully aware of the differences between profit and cash flow.
Let's explore the root of the cash flow challenge. It's not merely a client's unwillingness or inability to remit timely payment. It's also the growing seasonality of print procurement, production and usage. Printing, an industry once characterized by an even flow of work, is now a roller coaster ride. Order volumes wax and wane. The reasons:
* Erosion of demand for business forms
* Erosion of "information printing." The internet has become the dominant communication medium. Print has become the dominant medium for promotion and persuasion, which can be very seasonal.
This scenario won't change if and when the economy dramatically improves. In a major national research project conducted by our organization almost two years ago, we learned that in the average print company, the difference between the best sales month and the worst sales month in the previous year was a ratio of 2.3 to l and growing. Improved targeting of printed promotion materials probably will push the ratio to almost 3 to 1 during the next several years. Cash flow management will become increasingly critical. Here are some consequences our industry will face:
* Print manufacturers have serious staffing issues, particularly smaller companies in which there may be only one key operator for a major piece of equipment. It's a feast-or-famine environment. There are major risks in gearing up to exploit the few outstanding sales months. In many cases, companies may be best served by organizing to break even during the worst months, even if it means that some work will be subcontracted during the heaviest sales months.
* Salespeople compensated on a straight commission basis also bear the brunt of the increasing peaks and valleys of print demand. Home mortgages are due every month, but the size of monthly commission checks can be erratic. This has fueled the trend toward compensation plans that include a guaranteed base.
* Distribution and fulfillment services, such as mail-list maintenance, forms management, mailing and call centers are becoming more popular. They tend to even cash flow.
Of course, accounts receivable management has become a critical activity at every stage of the graphic arts food chain. It's especially important in situations when intermediaries such as distributors, designers or advertising agencies are invoiced by print manufacturers and, in turn, invoice end users. Speed of invoicing by manufacturers is a major issue today.
It's a source of wonder to many intermediaries that an incredibly complex job can be produced in two days under demanding conditions, but it takes two weeks to create the invoice for that job. In our survey work, we see cases where some intermediaries, satisfied with the product they're receiving from manufacturers, are switching suppliers merely because of slow invoicing. Once simply a nuisance, slow invoicing has taken on magnified importance in today's economy.
There's a tendency to treat the economy of the past three years as an aberration, which it may be. But the challenges of managing cash flow won't become easier regardless of the economy's health.
Contributing Editor Dick Gorelick is an award-winning authority on sales, marketing and business strategies for the printing industry. As president of the Graphic Arts Sales Foundation in West Chester, Pa., he travels extensively, consulting, writing and speaking on sales training.
