Increasing profits with faster stock turnover

Crematech was an importer and wholesaler of café supplies and equipment. Despite the quality of its products and a healthy market for coffee, the company was having difficulty increasing sales.

One reason was that its products were expensive compared to its competitors. Higher prices resulted in slower turnover, which in turn meant reduced cash flow. Consequently, the company could only afford to buy three shipments of stock per year.

Crematech’s owners decided that they needed to accelerate the cash flow cycle by increasing stock turnover.

After talking to a Commonwealth Bank Trade Specialist, they used a Trade Finance facility to fund extra shipments of stock. At the same time, they cut the mark-up on their products from 50% to 20%, significantly reducing their prices.

Lower prices soon meant higher sales. In a short time, Crematech was turning over stock monthly, rather than quarterly, generating sufficient cash flow for 12 shipments a year.

Even though each individual sale was less profitable, Crematech’s lower prices created enough new sales to cover operating costs and still leave the company with a higher profit. Meanwhile, the company’s Trade Finance facility helped it to cover any cash flow gap between paying for stock and being paid by its retail clients.

As a result, Crematech was able to earn a higher profit on the same initial investment, while still lowering its prices.

• This is a hypothetical example for illustrative purposes only and does not represent any particular individual or company.

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