“Show me the money” – Covid-19 and Cash Collections

By Jason Hart, TCM Ireland | May 08, 2020

Global pandemic: it’s time to put the attention on cash management

The COVID-19 pandemic has taken the world by surprise. In attempts to contain and delay the spread of COVID-19, governments have been implementing legislation, quarantine and social distancing measures. Restrictions on daily life have become normal.   Although first and foremost a public health emergency, the pandemic has meant immediate and severe challenges for all businesses, regardless of size. Perhaps the most immediate of these is controlling cash flow focused in cash collections.

It is worth pointing out that business failure associated with inadequate cash flow is not uncommon, even in better economic times. However, poor cash management issues rarely cause the sudden, dramatic collapse of a business, but rather they can give rise to a gradual downward spiral. The effects of this crisis are different. Accordingly, urgent contingency planning by businesses is required if they are to combat the economic consequences of the pandemic.

All you need to know about cash flow and cash management

Even during normal business conditions, sales need to be turned into cash and not left as a credit to avoid problems with cash collection.  However, invariably, business tends to focus on profit and loss – growing the top line while managing the bottom line. What are perceived as more routine back office activities like cash collections and paying bills are often taken for granted.

Cash flow can be forecast by studying a business’ cash in-flows e.g. sales of goods or services, loans, interest paid, rent receivable, etc… The timing of expected payments can be effectively analyzed, for example outgoings related to  suppliers, staff wages, capital expenditure, interest or loan repayments, tax and other liabilities.  Where receipts lag behind payments, it creates a cash shortfall, a bad situation for the cash management. 

Top tips for to enhance cash flow from your business

Given the importance of cash flow in times like these, good businesses simply must build in cash management as part of their overall business risk and continuity planning. Here are some basic considerations to safeguard and possibly enhance cash flow from your business:

  • Get the basics right, such as timely and accurate invoicing when goods/services are supplied and know who exactly to chase for payment.  Make sure there are no disputes about supply.
  • Manage and expedite payment of money owed to you. Be proactive about cash collection upon sales made, knowing that many customers may be seeking credit extensions too;
  • Reduce credit given (and where possible increase cash sales) and make sure any new terms given are appropriate – be especially wary of the credit-worthiness of new customers in this crisis;
  • Seek to obtain more favorable credit terms/debt repayment periods from your own suppliers;
  • Reduce your own expenses, delaying discretionary spend, and where you have the cash to pay your suppliers, seek to leverage any further resulting discounts for prompt payment, it could be a determining factor to enhance cash flow from your business;
  • Assess factoring or discount facilities to accelerate cash receipts;
  • Identify bad and doubtful debts very early in the cycle and take appropriate escalation action;

The above recommendations will be included in any good Credit Policy in any event, specially if you need to improve your cash management.

Specific moments deserve specific measures: COVID-19 

There is of course insufficient data for anyone to accurately predict how long the COVID-19 crisis might persist. However, if someone hopes to trade out of it and maybe enhance cash from them business, then it will have to critically assess the likely impact of the crisis, under these key areas:

  • Volume of sales
  • Creditworthiness of customers and implications for cash collections
  • Supply chain of the business and possible disruptions to that – consider alternate suppliers
  • Staff costs and skills risks – can payroll be managed and can key personnel work remotely?

Inevitably though, businesses will face both interruption and suffer the effect widespread market volatility. These factors will present significant credit risk. To that end, with cash flow in mind, businesses should:

Talk to their bank:

It will be prudent to seek liquidity measures such as revolving credit facilities; overdrafts; receivables financing or simply to discuss a possible agreement that the bank will waive defaults on existing facilities. All the main banks based in Ireland have announced that they will offer flexibility to their customers.

Consider possible supports available from the Government:

As well as commitments made to business by Revenue that will aid cash flow, there are a number of specific COVID-19 initiatives that may assist working capital/cash flow, including:

These are in addition to other government COVID-19 supports for employees and the self-employed.

Check the terms of your insurance cover.

Some policies may cover an interruption or a temporary closure in your business caused by COVID-19. This might greatly aid cash flow, as well as your general credit insurance and could help your business if it has any difficult in the cash collection.

Ask for experts

Seek advice from your Local Enterprise Office, and appropriate professional advice from your accountant or solicitor. That away you make sure that the cash management is in the right way.

Is the cash management a solution?

The disruption and uncertainty caused by the speed of the spread of COVID-19 virus has been unprecedented. Business should heed some wisdom of Dr. Michael Ryan of the World Health Organization, who recently pointed out that the greatest error of all in a crisis is the lack of action.

Any business that believes COVID-19 is going to have a significant impact on its cash flow specially the cash collection must now move to gain visibility and control over its cash flows and working capital. It should adhere to good cash management principles like those described in this article. It should also investigate all available supports and engage with stakeholders like its Bank/lender or the Government’s Department of Business, Enterprise and Innovation.

Every business should put in place a contingency plan for the new reality of business during a crisis, in the expectation that such a plan will have to be revised and tweaked, as the situation unfolds. 

TCM Group Global Debt Collection
Jason Hart
TCM Ireland

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