Managing cash flow in uncertain times

These are unprecedented times. As the COVID-19 situation continues to impact the global economy, businesses need to focus on cash flow management strategies and take decisive action in order to preserve value and successfully navigate the challenges.

The biggest challenge facing business leaders is liquidity and cash flow management. During the webinar, participants were asked what their level of confidence was for their cash flow. Nearly half (45%) said they were concerned or very concerned, while a quarter (24 %) expressed confidence.

Business needs will vary

All businesses are different. A range of factors – discreet sector challenges, balance sheet strength, funding structure and organisational capability – will affect the way corporates respond to the impact of COVID-19. This means that the crisis will require an array of approaches depending on the magnitude of impact and balance sheet resilience.

Of particular concern are low-liquidity businesses which have seen a high adverse impact, such as SMEs. These businesses are the most vulnerable and will need to implement turnaround strategies, including early identification of operational and commercial turnaround initiatives such as optimising working capital and right-sizing their cost structure. They will also need to reforecast liquidity and start looking to secure financing and government support.

When asked how far they were currently forecasting cash flows, nearly 80% of the audience suggested they were forecasting between 8 weeks and 24 weeks. This is well within market best practice guidance that businesses need to forecast cash flows up to 13 weeks ahead in order to ensure effective visibility (based on industry norms). “These forecasts should also be revised on a weekly basis to ensure they remain reflective of the changing environment” says Pri McNair, Regional Head of Client Coverage, HSBC.

More broadly this is the time for businesses to strengthen their existing position by improving operational and organizational processes, such as assessing and managing third-party credit and supplier risks. They should also assess the ability of their own operations to meet the demands and impacts of the lock down, and even identify potential growth opportunities. This includes solidifying digital strategies, applying learning from their recent experiences as to how digital transformation can support how they operate.

What all businesses have in common is the need for a robust approach to stakeholder management, liquidity management and funding, including short-term cash flow forecasting. Businesses fail not because they run out of profit, but because they run out of cash.

An enhanced approach to cash management is crucial

Yet preparing a cash flow forecast isn’t enough. Corporates must implement tactical and process enhancements in order to effectively manage liquidity and preserve cash.

A key move in the current crisis is to eliminate all discretionary spend and focus on cash conversion. Businesses should assess the costs of mothballing in order to postpone all non-critical capex until the situation improves and identify opportunities to convert fixed costs to variable ones.

Managing short term cash flow requires a cultural shift in the business and engagement across all internal business stakeholders, not just the finance function, is imperative. Intelligent supply chain management, strategies to centralise cash management, and prioritising payments against cash held in the bank were some of the suggestions made by David Stark (Head of Restructuring Services, Deloitte).

During the webinar, less than two-thirds (61%) of participants said that they spoke to suppliers on a weekly or daily basis. Yet with the volatile climate, having regular and detailed discussions with suppliers should be a key task, as critical suppliers on the brink of failure may need their payments prioritised.

Processes must also be managed carefully during this crisis period. Companies need to understand and plan for real-time cash flow scenarios, with forecasts that incorporate the impact of government updates and reflect conversations with customers and suppliers.

Using technology to manage cash flows

“Businesses need to harness available technology that will enable enhanced cash management” advises Sunil Veetil, Regional Head of HSBC’s Global Trade and Receivables Finance business. “Digital, secure platforms like HSBCnet help to optimise the flow of goods, funds and trade information from the point of order right through to final payment. This will also help free up cash”.

Clients have a clear picture, via HSBCnet of all accounts, balances, trade transactions, clearing and currency payments. The customisable trade dashboard allows for transparency and greater control. HSBCnet Buyer Loans maximise working capital by paying suppliers more promptly, with pre and post shipment finance options, while HSBCnet Receivables Finance will help realise and optimise working capital.

Effective management of cash and cash flows are critical – businesses must ensure smart liquidity management and accurate short-term cash flow forecasting. As technology is an enabler of good cash management, secure, reliable digital platforms such as HSBCnet are key to successfully navigating these challenging times.

What all businesses have in common is the need for a robust approach to stakeholder management, liquidity management and funding, including short-term cash flow forecasting. Businesses fail not because they run out of profit, but because they run out of cash.

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managing cash flow in uncertain times infographic

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