How to Manage Cash Flow During COVID-19 Crisis?
As the COVID-19 has overtaken the world by complete surprise. This newly recognized coronavirus has been seen in the Wuhan on 31 December 2019. As now we entered April, this virus has infected more than 1 lakh people and led to more than 5000 deaths. Additionally, more than 75 countries are reporting the case of COVID-19. This virus has spread all over impacting the ecosystems, communities and supply chains far beyond china. The primary focus of the businesses is now to save their employees, aware of the risks to their companies, and also manage supply chain disruptions being caused by efforts to control the spread of Coronavirus. Still, the impact of these issues on the supply chain as well as businesses is not known. But, one thing is sure this event will have financial and global ramifications that might be felt throughout the global supply chains from the raw materials to finished products.
With this blog, we will provide recommendations for the companies which have business relationships and supply chain flows and other impacted geographies. As given the importance of the cash flow in this time, companies need to immediately develop as part of their entire business risk and continuity plan. From the lessons been learned from the SARS outbreak in 2003, the 2008 recession impacts the global supply chains. So, here are some strategies and practices for the considerations:
Make sure to have a robust framework for managing supply chain risk
Supply chain management is a highly complex challenge, and finance-related issues only add to the risk. Are you aware, if any of the customers of yours are in the issues and unable to pay for the services and goods you deliver? If you are manufacturing the product and you want to sell it to someone outside your borders, you need a letter of credit from the prime bank which proves buyer can pay. This letter of the credit not only offers a source of income but can also be utilized to secure inventory financing while the products are in transit.
Make sure that financing remains practical
Considering the circumstances, never assume that the option of the funding you were having previously will be available to you now. Make use of this opportunity to get engage with your financing partners and ensure the lines of credits availability and discover the options.
Check your variable costs
Minimizing the variable costs one of the instant ways to reduce the cash outflow than just focusing on the fixed costs. If labor is the crucial cost line in your business, consider the avenues which can help to minimize spend and avoid getting the situation where layoffs are needed.
Check capital investment
With the cash flow forecast in your mind, consider what is important for the nearby operations. Check what capital investments can be delayed until the situation gets better. Check if the capital investments are needed to rebound for creating competitive advantage.
Delay payables, excellently
The ideal way to prevent working capital is to take time to pay your suppliers. Some organizations might decide to extend their payments. Well, this can worsen your relationship with the supplier. So it is advisable to work with suppliers after establishing an agreement you both agree upon.
Perform financial health check on your business
Considering the situation, it is essential to know the financial health of your activities to decide what you can do to run your business operations in the best possible way. This vital information can be gained by checking financial statements.
Make a new budget with a new assumption
The assumption which you might have utilized for making the budget is not relevant now due to the crisis. Thus, it is better to work with your company accountant and check the impacts of COVID-19 and re-do your budget. Consider all the possible scenarios while making the budget as it will help you to manage company cash flow.
Act to enhance cash flow
After you are done with making the budget and financial health risk of your business. Now, it’s time to act to enhance cash flow. The initial step to0wards improving is to prepare a cash flow forecast, updating it throughout the crisis.
The cash flow management is required to be a highly important element during the risk assessment and operations planning during COVID-19. Even the companies which are not affected by this, we advise them to get concerned about coronavirus and assess their cash flow need, make appropriate actions under several scenarios, and check the potential risk in and their customer base and supplier network.