Cash Flow Strategies for Businesses Impacted by Coronavirus (COVID-19)
The novel coronavirus COVID-19 has caused a huge downfall in demand for products and services around the world. It has bought unpredictable changes that will have a significant impact on your regular operations and smooth cash flow.
The vital operational tool of success for an organization is to manage cash and cash flow during such a period of crisis. Clear insights into strategies affecting the smooth cash flow are crucial for understanding the potential short term and longer-term impact on the balance sheet.
There are essential cash flow management steps that can help your organization to manage challenges associated with COVID-19. It also helps you with the possible economic consequences ahead.
Adjust Cash Flow Budgets
At such a challenging time, every business needs to know the impact caused by such events on the cash flow. You should constantly review the forecasts and adjust your cash flow according to the situation. It will help you to determine its effects on your ability to repay debt.
Review Capital Expenditure
Business owners should thoroughly consider any new or existing investments in capital equipment until the present COVID-19 situation becomes better. For some businesses, this may be the best shot to invest to create a competitive advantage in the future.
Easy Financing Options
You should not assume that your current available financing facilities including previous financing options will continue to be accessible in the future. Look out for some easy additional financing options available in the market.
Take this opportunity to connect with your financer or bank to ensure that your present lines of credit remain available.
For example, you may need to consider applying for a business working capital loan to cover the pending payment and generate faster cash flow from your receivables.
Be Prepared For The New Expenses
The good start of any cash management initiative is to have a clean line of sight into expenses. It is necessary to identify the new expenses incurred in order to ensure a satisfactory response.
Constantly checking over the savings by reviewing the profit and loss statement. You can save by cutting on optional overheads such as consumables and advertising.
Labor is a significant expense in most of the business, you can consider alternative ways of reducing staff wages to avoid layoffs.
Due to COVID-19, most industries are experiencing supply chain interruptions due to deficits in the supply of raw material.
To avoid such a situation, you should explore alternative supply chains to ensure a smooth supply of raw materials. It will act as a buffer against any potential impact of a prolonged supply chain disruption.
Take essential steps to improve the sales of perishable products or slow-moving stock to generate more cash.
It is the right time to maintain a healthy relationship with your debtors. Contact your customers and clients to encourage them for early payment. You can attract them by providing reasonable discounts.
You may consider negotiating periodic payments as your clients themselves are undergoing the same cash flow difficulties as you are.
Your admin processes need to be updated to support the following:
- Invoicing the service or product as soon as it is delivered
- Daily or weekly reviews of contracts with customers
- Determine the reason for the canceled order
- Following up with slow-paying customers
- Regularly reviews of aged debtor reports
- Constantly update your contracts to limit the capability of clients for cancelation
If the coronavirus is impacting your business, the options to handle your debts become limited. In this crucial situation, you should take the possible step to negotiate with your creditors, as they may be in a strong position to help you in some way.
You have the following options to consider pursuing:
- Evaluate your contracts to determine if you can delay the delivery or cancel the orders.
- Contact your suppliers to request some payment extensions.
- Contact your landlord and ask for possible rent reductions, variations to the lease, or payment extensions.
How We can Help
At the time of this pandemic COVID-19, various kinds of distractions are impacting the operational, strategic, and financial functions for every organization. We understand the difficulties and pressures faced by various business owners all over the world.