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Cash is extremely important, particularly during these special times. Ideally, you should focus on identifying all short-term (and longer-term) actions that can be taken in relation to your accounts receivable, accounts payable and inventory to protect your cash positions, but also on collecting sufficient liquidity to keep your operations running and ultimately to survive.
It is important to automatically flag all quick-win actions you could take to collect cash faster, reduce payments being made too early, and hence protect your liquidity. We suggest focusing on the way accounts receivable, accounts payable and inventories are being managed.
Based on your system data and actual transactions, it is important to identify the key actions (including monetary impact simulation) to be taken that have the highest impact on your cash flow, together with pre-packaged next steps and estimated effort.
Key questions to consider
There are a number of areas that may be affetced. Here are some questions you should consider:
- How can you identify and assess accounts receivable, any unusual behaviour (trend analysis), payment terms that have been changed inappropriately or without authorisation, and deliverables that have not yet been or are late being invoiced?
- Which supplier invoice now faster, change their payment terms on invoice level, get paid too early, are paid without discount, etc.?
- Is your stock and WIP level appropriate to the new situation? Which stock levels can be reduced without affecting critical operations?
- How can you protect your liquidity to be able to keep running your operations and survive?
- How can you flag actions to be taken to optimise your cash flow?
- How can you better control and forecast your liquidity and cash flow?
- What actions can be taken on the accounts receivable, accounts payable and inventory to quickly improve your cash flow positions?
Challenges to address
Observations suggest that cash flows dry up quickly and appropriate actions and planning are critical to keep operations running and survive COVID-19.
| Accounts Receivable | Accounts Payable | Inventory | |
| Description | In times of crisis, many customers typically extend their payment deadlines, which lead to delayed incoming payments. It is critical to flag quickly any negative trends or new behaviour to correct them immediately. |
In times of crisis, many suppliers typically shorten their payment deadlines and invoice faster. This leads to payments going out too early. It is critical to flag quickly any negative trends and new behaviour to correct them immediately. |
Companies do not have transparency on available inventory. In this situation two scenarios are possible. Either suppliers are severely affected that they cannot supply on-time Or inventory accumulation takes place due to lower sales and uncertainty |
| Consequences if interrupted | Delayed incoming payments may cause unplanned insufficient liquidity. This situation may threaten the continuance of your business. |
Payments going out earlier than planned may cause a lack of liquidity. This situation may threaten the continuance of your business. |
The company cannot ensure an on-time delivery to customers and loose potential/ key customers and hence loose potential revenue. The company invest scash into inventory accumulation, which can be used for other purposes (e.g. to cover fix costs or pay invoices) |
Coronavirus scenarios and mitigation for Working Capital
COVID-19 affects organisations to different degrees, requiring several actions.
| Details | Wave 1 (current situation) Customers extend the payment deadline |
Wave 2 Suppliers invoice faster, hence shortening the payment deadline |
Wave 3 Increasing doubtful receivables and losses, too late payments of key suppliers, no adjusted stock level to current situation |
| Functional impact | Cash liquidity declines, limit of current account has to be increased, leading to an increase of interest expenditures | Cash liquidity declines, limit of current account has to be increased, leading to increase in interest expenditures; risk of losing key suppliers |
No sufficient cash to operate business, danger of insolvency, too much capital lockup in inventory |
Proposed actions |
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