lights

Managing cash flow & liquidity to protect your business

  • Martin Thomas, Director |

The COVID-19 crisis has companies scrambling to prepare for whatever scenarios may arise in the coming weeks and months. If you find your business facing immediate cash flow and liquidity issues resulting from the COVID-19 crisis, following a clear concise plan can help you manage your way through.

In every business, all departments are working full steam to stabilize the business; to understand the consequences; and, to prepare for an economic downturn. Playing a central role, the Finance and Treasury function should be monitoring and actively steering a company’s cash and liquidity situation to prepare for potential challenges.

If your business is facing immediate cash flow and liquidity issues resulting from the coronavirus crisis, following a clear, concise plan can help safeguard the future of your business. There are fundamental actions you can take – based on our experience working with several of your peers – to build resilience in this volatile time.

Short-term actions

  • Secure global funding daily with a daily cash visibility of global cash positions.
  • Identify and release trapped cash within the group structure for efficient use within the group.
  • Talk to banks to secure and extend credit lines. Use your group’s leverage and the ancillary business you allocate to banks strategically.
  • Get an understanding of governmental corporate credit initiatives.
  • Establish a daily detailed 3-month cash forecast to identify shortages early.
  • Track working capital KPIs closely:
    • Identify initiatives for improving payment terms at AR and AP. This might be difficult, however a company has to a least think about practical and realistic measures;
    • Extend or set up Factoring and Reverse Factoring programs. Reverse factoring programs can be quickly set up in 2-4 weeks using digital platforms rather than bank programs
  • Monitor covenants of your financing activities and simulate stress scenarios for covenant breaches.
  • Define an action list for potential covenant breaches.
  • Monitor and simulate breaches of bank guarantee KPIs and understand the full financial impact of any such breach.
  • Monitor and analyze the internal credit risk of existing cash pool structures and define limits for cash pool liabilities.
  • To avoid going concern problems, initiate measures to stay regularly informed regarding any financial difficulties cash pool members may experience.
  • Prepare management’s current "Going Concern Assessment". Prepare documentation for creditors and auditors as they will request it in these critical times.
  • Strengthen the cash culture in other departments:
    • emphasize the strong need for accurate forecasts
    • track outstanding payments closely
    • adjust and tighten credit limits for outstanding invoices with customers – involve your sales and controlling departments.

Mid-term actions

  • Improve the global cash pool set-up for a more automated and efficient use of the global cash reserves.
  • Strengthen your core bank strategy using the group’s strengths to negotiate credit lines and allocate ancillary business on a higher scale in an orchestrated way.
  • Set up the technical structures for flexible increase or decrease of Supply Chain Finance and Factoring programs. Plug and play platforms are available and easy to integrate.
  • Improve Cash Forecasting and Liquidity Management for more accurate and reliable data. Identify all of the group’s business drivers for liquidity. Start using predictive analytics for liquidity planning.
  • Increase the centralization of finance activities in treasury headquarters for cash and Liquidity Management, for bank relations and for payments to utilize full group scale vs fragmented local solutions. But also to make use of the latest technology.

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