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Cash flow management during COVID-19 pandemic

François P.

Recent measures on the Covid-19 have a major impact on all aspects of daily life and undeniably also on businesses. The global economy has taken an unexpected turn and business leaders now face immediate challenges, including managing their cash flow.

Christophe Engels (CFO of Engels NV), one of the users of our platform, pointed out very recently that:

"Short and accurate monitoring of cash planning is essential in every business. When the market is difficult and changing, this need is reinforced because it is very important to be able to respond quickly to this situation. If you have a clear view of your cash flow and you can adjust it quickly, then you keep control."

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We spoke with Réginald Nobels, Business Expert at EMAsphere, who shared his advice on cash management at a time of global economic downturn. "A point of attention should be given on the one hand for the analysis of cash flows and on the other hand, on the forecast of your cash flow" stresses Réginald Nobels.

Analyse your cash flow

One of the first actions to be taken in a crisis situation is an in-depth analysis of the various flows and key indicators in order to quickly implement several corrective actions. Réginald Nobels cites 6 positions to optimise as soon as possible:

  • Commercial receivables
  • Inventory management
  • Commercial debts
  • Purchases
  • Fixed costs
  • Investments

Commercial receivables

First, analyse your old balance or your timeline. Customers should be actively contacted to collect payments where possible. Under the current circumstances, many customers will not be able to pay you immediately. We therefore advise you to analyse the sector of your clients' activities in order to list on the one hand, those that will be most impacted in the short term by the economic repercussions of Coronavirus and on the other hand, the sectors whose impact will be felt less. For the most impacted customers, it will probably be necessary to propose a payment plan in order to anticipate future payments. In this case, be sure to analyse the effects that this payment spread will have on your company's cash flow. "The aim of the payment spread is to ensure a continuous cash inflow despite the crisis."

Inventory management

Also, focus on effective inventory management, in order to limit the locked-in value represented by them. "Too much stock is money that sleeps unnecessarily." In this period of Coronavirus, optimising your cash flow is essential, we advise you, if this is applicable to your business, to reduce your stock in order to reduce its value. Keep in mind, however, that the supply chain may be partially interrupted. The whole point is to find a balance to establish a minimum stock value and maintain your business activity.

Commercial debt

Be sure to spread commercial debt and other short-term debt intelligently. In relation to supplier debts, Réginald Nobels advises: "Just as you have offered your customers payment options, be proactive and contact your suppliers in order to extend your payment period or obtain a payment plan spread over time. The objective of these actions is to reduce cash outflows over a very short period of time in order to preserve your liquidity."

Purchases

Also analyse your purchases in detail and consider if other options are possible. Make sure you focus on purchases that are essential to running your business.

Fixed costs

Question your fixed and variable costs and try to convert fixed costs into variable costs.

Investments

Finally, study your investment plan and negotiate with your banks the best possible solutions. Under certain conditions, they have been instructed to support companies and central banks in this regard.

Complete your weekly cash flow plan

In the current circumstances, it is also essential to create a weekly cash plan based on expected income and possible and confirmed expenses, while taking into account the current amounts on your bank accounts. This planning makes it possible to be more responsive. For this financial year, Réginald Nobels also states: "Regarding cash flow forecasts, don't forget the impact of decisions taken to optimize cash flow." Indeed, if it has been decided, for example, that customers will pay through a payment plan, this must be taken into account in the forecasts."

All of the above information provides a cash forecast that provides a clear overview of expected inflows and outflows, and final cash flow. It is also essential to distinguish between operating and non-operational cash flows. Again, define different scenarios to prepare for each situation.

Claudia De Moor, manager of Vosschemie Benelux:

"Optimal cash management in the current Covid-19 crisis is essential. the platform allows me to closely track our cash flow, including the day-to-day management of unpaid customer bills and very strict control of expenses."
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In conclusion, in times of crisis, cash management is a key element of your risk management. Quickly defining concrete actions and anticipating the possible developments according to different scenarios will make it easier for you to overcome the difficulties faced by your company.

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