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Managing Cash Flow Amid a Crisis

The COVID-19 pandemic is wreaking havoc on the world economy, and businesses in all industries are feeling the effects. In these uncertain times, it’s imperative that business leaders have a strategy in place for managing cash flow. Here are a few tips to help your business weather this storm.

Managing cash flow

Extend your lines of credit

Contact your financing partners to ensure your lines of credit remain available and explore additional options for financing in case you need it. Do some scenario planning to identify critical short, intermediate, and long-term cash needs.

Negotiate with vendors and suppliers

Reach out to all your vendors and suppliers to discuss the terms of your payments. If you need to extend payments, have a plan that satisfies all parties. There may even be situations where you must accelerate payments for a critical supplier to prevent disruption and preserve the integrity of the supply chain. Ensure you understand the financial risks of your key trading partners, suppliers, and clients.

Speed up customer payments

Contact clients you have a strong history with and see if they can make their payments ASAP. Offer them a discount along with your request if you can. Look at outstanding invoices and increase your collections activity if any significant receivables are overdue. If you don’t already, consider accepting credit card payments so you can charge the card immediately upon the customer’s approval. Ensure there are no errors in your billing process and you’re managing cash flow using best practices, such as processing invoices accurately and promptly.

Reduce variable costs

Typical variable cost-reduction levers like imposing hiring freezes, travel bans, and restrictions on non-essential meetings are probably already in place to keep your employees safe amid the COVID-19 pandemic. Restrict other discretionary expenses like entertainment and non-essential training. Avoid layoffs by reducing contracted labor and giving that work to your permanent staff. If necessary, consider offering voluntary (or involuntary) leave without pay to conserve cash.

Focus on inventory management

Businesses are at risk of experiencing supply chain disruptions due to shortages in raw parts and materials. Businesses will need to think about securing additional inventory as a buffer against a broader or more prolonged supply chain disruption. At the same time, companies might be looking at this from a cash flow perspective and considering reducing their inventory, which makes sense with perishable products.

The tricky part will be balancing the demands for more cash flow and buffer inventory. Companies using simple inventory management procedures might find immediate opportunities to drive down stock with a quick assessment. Still, significant inventory cuts may harm production and customer service.

Audit payables and receivables transactions

Ensure you are collecting the right amount for the goods and services you sell and paying the right amount for the goods and services you procure. Keep regularly updated financial statements to help you in managing cash flow.

Check your business interruption insurance

There is a lot of disagreement regarding whether business interruption insurance policies should cover the loss of income triggered by the pandemic. While courts and lawmakers are addressing these issues, companies that have a business interruption policy in place should review their policy in detail and contact their insurance company for further guidance.

We’re in this together

We’re living in unprecedented times, and it’s more important than ever to be agile and able to adopt new tactics in managing your cash flow. If you have any questions or concerns, contact us today. 

Author: Megan O’Donnell

This entry was posted on Tuesday, May 5th, 2020 at 10:05 am. Both comments and pings are currently closed.