Five Steps for Managing Cash in the Age of COVID-19

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In recent weeks, we have heard countless, heartbreaking stories from customers that are facing immense pressure on their cash flow due to the economic crisis brought on by the COVID-19 pandemic. Your company may be like many around the globe that are worried about how to make payroll or rent payments in the coming months.  

In my previous financial roles, I have seen first-hand the effect that economic crises can have on cash flow. In one instance, during the Great Recession of 2007-08, the company I worked for had to halt production of a popular item because a supplier no longer had the cash on hand to make a critical component for that product. The supplier’s inability to secure enough liquidity to continue production created an out-of-stock situation for my company and missed sales opportunities for everyone involved. 

Many companies have it much worse than that during this time of social distancing, 14.7% unemployment and an unsteady reopening of the economy. For those businesses that may not be fortunate enough to receive Paycheck Protection Program (PPP) loans from the government or find the PPP loan to be insufficient, securing the cash they need quickly from traditional funding sources can be next to impossible right now.   

The great American essayist and philosopher Ralph Waldo Emerson once wrote, “Money often costs too much.” In uncertain times like these, that’s especially true for many companies. 

The good news is that there are more financial tools available to improve your cash position today than ever. The road ahead may be difficult, but here are five strategies you can implement to help your company’s cash management: 

1. Examine your liquidity and consider future scenarios  

Conduct a careful assessment of your company’s available cash and liquidity needs. Is the cash on hand restricted or is it available for use? If your company has global operations, where is that available cash located? 

Knowing how much cash you have available — and where — is the first step to gaining a full picture of your liquidity and knowing how to preserve or expand upon your cash position. 

It’s hard to predict what the next few weeks will bring, much less the remainder of 2020 for your business. However, implementing short- and long-term forecasts for your cash flow is critical at this time. When modeling your cash flow forecast for the next three to six months, run various scenarios and envision the worst-possible cases. For example, what effect would a rebound of coronavirus infections in the fall have on your company? What can be done if your bank pulls back on your line of credit, or sales fail to return to pre-pandemic levels?

Be sure to revise these forecasts often in the coming months as the twists and turns of the coronavirus continue. 

2. Take immediate steps to secure your cash position 

If you haven’t already done so, determine what you can do right now to reduce risk and improve the movement of cash through your organization. 

Take steps to evaluate customers’ credit risks and determine if you need to take any actions to collect on receivables during the current economic climate. Consider pulling back on some products or services and focus on your core business and what customers need right now. 

You can also prioritize your company’s expenses. Are there ways to reduce variable costs like material purchases, contractor services and software subscriptions? Some costs of doing business, like travel and entertainment, may already have declined due to the pandemic, but other non-essential variable expenses should be actively managed.

In terms of fixed costs, can you defer payments to your landlord or the power company without penalty? Preemptively reducing less urgent expenses can provide much-needed relief to your balance sheet.  

3. Consider new sources of cash flow

The trillions of dollars authorized by the federal government to flow from banks only goes so far in addressing the liquidity problem for small to mid-sized businesses, one that we at C2FO estimate could be more than $16 trillion worldwide

Explore any and all government programs and deferrals. In addition to PPP, the U.S. Small Business Administration provides other options like a $10,000 loan advance, express bridge loans and debt relief programs. Businesses affected by COVID-19 can now defer their payroll taxes and also receive tax credits for payroll and healthcare expenses.

Because banks often pull back on lines of credit during recessions, now is a good time to assess alternative finance as a way to boost cash flow. As you may know, the C2FO platform provides numerous funding options, starting with early payment from your customers, that enable you to quickly access cash when your company needs it. 

4. Maintain clear communication with customers and suppliers 

One message that has permeated throughout this crisis is that, “we’re all in this together.” That’s particularly true for you and your trading partners. 

Right now, many companies may be hunkering down as they decide what to do next. The better approach is frequent and clear communication among you, your suppliers and your customers.

Being transparent about what your company can and cannot deliver during this crisis can build stronger trust with the other businesses in your ecosystem and position you for stronger growth when the economy rebounds.  

5. Embrace the “new normal” of a reopened economy 

In the coming months, expect more surprises as governments worldwide continue to adjust their restrictions in response to the virus, companies temporarily close or go out of business and available credit continues to be difficult to access. The road to economic recovery could be V-shaped, with a big rebound in the second half of 2020. However, it’s more likely to be a slow, halting return to stability that could go well into 2021. 

The coming weeks and months will be challenging, but there are financial levers you can pull to improve your company’s cash position. As a finance leader, it’s important to focus on those few areas that are within your control and respond calmly and decisively to those economic events in the coming months that are out of your control. 

This is obviously a daunting time for all of us. There’s an expression I’ve heard recently: “We are all in the same storm, even if we are in different boats.” In the coming months, please know that we at C2FO are aware of many of the challenges that businesses face right now and we’re always here to help.