Managing cash flows during a period of crisis

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Managing cash flows during a period of crisis

Mathew Isac

3 Apr 2020, 11:57 — 5 min read

Every business has been focused on protection of its employees, trying to gauge risks to their business and put in measures to mitigate risks caused by the COVID-19 pandemic as quickly as possible.

The full impact of this pandemic is still unknown, however we are already aware that the ramifications of this event will echo long into the future. It has and will continue to impact the economy in all parts of the world.

This report by Deloitte, provides 15 recommendations for organisations pertaining to their cash flows.

Recommendations

1. Ensure you have a robust framework for managing supply chain risk.

The Supply chain has seen disruption throughout the world. Evaluate you client account to flag customers who may not be able to make payments. Ensure you understand the financial risks of your key trading partners, customers, and suppliers.

2. Ensure your own financing remains viable.

Financing opportunities that were available to you earlier may now no longer be available. Actively engage with financing partners and explore new lines of credit. Gain an understanding on how much cash would you require and for how long. A

3. Focus on the cash-to-cash conversion cycle.

Apply a coordinated approach to address all three element (Receivables, Inventory and Payables) of your CCC

4. Think like a CFO, across the organisation.

Remember that working capital is a constraint and take all decisions accordingly.

5. Revisit your variable costs.

Identify ways to reduce variable costs. Re-look at all non-essential costs like travel, meetings, trainings etc.

6. Revisit capital investment plans.

Consider: 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?

7. Focus on inventory management.

Balance the demands for more buffer inventory and managing cash flow. Remember that significant cuts in inventory can adversely affect customer service and production

8. Extend payables, intelligently.

Establish an agreement with your suppliers which is fair to both. An arbitrary decision to delay payments will strain relationships and cause a delay in deliveries and lead to quality issues.

9. Manage and expedite receivables.

Take a hard look at how collections are being managed. Improve the rigor in your processes, if required.

10. Consider alternate supply chain financing options.

Factoring receivables maybe an option that you may want to explore. You may also want to explore ad-hoc payment terms with clients who can afford to pay faster in lieu of a discount.

11. Audit payables and receivables transactions.

Increase the rigor on checking that you are paying the right amount for services, material, taxes etc; Check if you are utilizing all available discounts, provided that your cash-flows allow it.

12. Understand your business interruption insurance.

Understand the inclusions and exclusions of your policies. Utilize the provisions available to you.

13. Consider alternate or non-traditional revenue streams.

Consider pivots, look at adjacencies that can help you add to your revenue-streams

14. Convert fixed to variable costs, where possible.

15. Think beyond your four walls

Consider the upstream and downstream impact of your actions. Consider the ecosystem as a whole.

Source: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-COVID-19-managing-cash-flow-in-crisis.pdf

About us

Wadhwani Foundation’s primary mission is accelerating economic development in emerging economies by driving large-scale job creation through entrepreneurship, innovation and skills development. Founded in 2000 by Silicon Valley entrepreneur, Dr Romesh Wadhwani, today the Foundation is scaling impact in 25 countries across Asia, Africa, and Latin America through various initiatives like the Wadhwani Advantage.

Wadhwani Advantage is a program for small businesses with an employee strength of 50 to 250 employees. The program offers high-quality advisory, strategic and operational service pro bono and at a subsidized fee by our mentor-advisor consultants or partners. The program is enabled through the Wadhwani Advantage APP. The APP gives you instant access to personalized action-oriented content and connects. The program includes 1-12 months of engagement to help you achieve hyper growth. It also offers up to three years of hand-holding support enabled through our Artificial Intelligence (AI)-enabled platform. Download the Wadhwani Advantage app on Google Play and App Store.

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

Posted by

Mathew Isac

Expert Advisor and Consultant for SMEs on the platform, specially to address queries on the impact of COVID-19 on business owners in India With over 28 years experience in...

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