MANAGING CASH-FLOW FINANCING THROUGH THE PANDEMIC.

 

MANAGING CASH-FLOW FINANCING THROUGH THE PANDEMIC.

Given the importance of cash flow in times like this, companies should immediately develop a plan for cash management as part of their overall business risk and continuity plans. In responding to the immediate challenges, the following steps could be taken for business survival and growth: Ensure you have a robust framework for managing supply chain risk. Supply chain management is a complex challenge, and finance-related problems only add to the risk. Do you know if any of your customers are in trouble and might be unable to pay for the goods and services you deliver? Ensuring you understand the financial risks of your key trading partners, customers, and suppliers  is a critical consideration in times like these. Ensure your own financing remains viable In these circumstances, don’t assume the financing options you previously had available to you will continue to be available. Undertake scenario planning to better understand how much cash  you’ll need and for how long. Use this opportunity to actively engage with your financing partners to ensure your available lines of credit remain available, and to explore new or additional options should you require them. Extend payables, intelligently One way to preserve working capital is to take longer to pay your suppliers. Some companies may unilaterally decide to delay their payments and force the extension on their suppliers, such an approach is likely to damage your supply relationships. We recommend working with suppliers to establish an agreement that both of you can live with. Manage and expedite receivables Above, we mentioned the strategy of delaying payments to your suppliers; don’t be surprised if your customers are thinking about doing the same thing to you. That’s why it’s important to  improve the rigor of your collection processes. Focus on customer-specific payment performance and identify companies that may be changing their payment practices. Also, get the basics right, such as timely and accurate invoicing. Focus on the cash-to-cash conversion cycle In the current abnormal business conditions, smart companies are shifting their focus from the income statement to the balance sheet. It is important to apply a coordinated approach that address all the three elements of supply chain working capital which are; payables, receivables, and inventory. Revisit capital investment plans With cash flow forecasts in mind; consider what’s really necessary for the near term. What capital investments can be postponed until the situation improves? What capital investments should be reconsidered? What capital investments are required to position for the rebound and for creating competitive advantage?