Cash Flow Management in An Uncertain Environment

Getting creative and analyzing your processes can help you weather the storm

Cash flow woes are exacerbated during a widespread crisis when orders are reduced, belts are universally tightened and customers pay more slowly. Add unprecedented safety concerns to the mix, and it becomes tough to imagine stabilizing cash flowlearn about stabilizing cash flow in the short term, and even more challenging to plan for an unknown future. A recent survey from the National Center for the Middle Market found that 76% of respondents believe COVID-19 will impact their working capital this year, and 25% fear a "catastrophic" impact.*

In this environment, it's more important to focus on short-term viability than long-term objectives. Certain tactics can help you weather the storm if you're willing to get creative, analyze your processes and ask for help.

  • Add rigor to payables and receivables – It’s crucial to avoid accounting inaccuracies during an uncertain time, so now may be as good a time as any to audit your processes. Make sure the basics, like invoicing and processing, are a well-oiled machine so you can flag any inconsistencies. Your customers may be delaying paymentslearn about processing paymentslearn about payables and invoicing without discussing with you first; if so, don’t hesitate to follow up with them. If it makes sense with your customer base to introduce late fees, do so. 
  • Overcommunicate – With many employees working remotely, communication is more critical than ever. Ask your finance team if it's possible to report daily on key metrics like daily cash position, working capital and week-over-week cash-flow forecasting. Armed with this knowledge, decision-makers can triage for the short term and think strategically about the long term. 
  • Ask about extending payment windows – If it’s appropriate, talk with your suppliers and vendors about a payment extensionlearn about managing payableslearn about managing payables. You may be able to come to an agreement where you’ll remain a customer in exchange for prolonged payment terms. As you consider what payments to prioritize, focus on the smaller, more vulnerable partners first. If they go out of business as a result of the current crisis, you'll have a new problem on your hands.  
  • Reconsider variable costs – Some variable costs, like company outings or travel, are likely on hold right now due to safety concerns. Consider other items on the ledger that can be reduced or eliminated. These might include discretionary spending on supplies or training materials or a reduction in contract or freelance employees. Finally, to reduce liabilities moving forward, encourage employees to take advantage of any stored-up paid time off during this period.
  • Consolidate inventory – Inventories of goods not related to fighting or living through the pandemic are likely to accumulate, even amid supply chain disruptions. Consider putting recurring orders on hold and keep a close eye on unloading anything with an expiration date. 
  • Reevaluate the future – No one is sure when business will return to normal (or a "new normal"), so it may make sense to put long-term investments on hold to focus on keeping operations humming for the immediate future. One exception: If an investment is key to helping your business rebound and stay competitive, keep it in play. 
  • Recognize that access to cash may be fleeting – Don't be afraid to have a frank and open discussion with your lenders and financing partners. You may have access to stimulus programs, lines of credit, deferred loan payments or other products or services to help you over the hump. Ask for help as soon as possible, as lenders are fielding an unprecedented number of requests. (As of April 13, 2020, 4,500 lenders had responded to 860,000 applications for $210 billion of loans, or well over half the $350 billion earmarked for the Paycheck Protection Program.**)  

Transparency and clear communication will play a major role in all of these strategies, so keep the lines open between you and your suppliers, your employees and all of your business partners. It's a stressful and complicated time for all, but it can also be an excuse to streamline your processes, realign plans and focus on what's most important. 

* COVID-19 and the Middle Market, National Center for the Middle Market, April 3, 2020

** Small businesses start to get rescue funds, but payouts overall are lagging, CNBC, April 13, 2020

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