Overcome Cash Flow Crunch During COVID-19

#By Parvathy Suresh & Maham Shaukat

The COVID-19 recession is affecting all industries, regardless of their commercial robustness or fragility. A ripple effect is being generated as the cash crunch spirals across the business world. The approaches taken during the COVID-19 crisis have implications not only for businesses, but also customers.

Learning from the practices implemented during the 2008 economic crisis in the UAE, the following strategies may be implemented to manage cash flow:

Consider current financial viability

Plan how much cash is required by the business and determine if customers are unable to pay for your services. Ensure that lines of available credit continue to be available, by actively engaging with financing partners.

Rigorously manage payables and receivables

Ensure that the correct amount is paid for goods and services procured and those that you sell. For payables, double check payment of duties, taxes, and renewals. On the other hand, for receivables, strengthen your collection process and look for situations where discounts that were unearned were applied. Accurate and timely invoicing is also a key element.

Review working capital requirements

Shift your focus from profit and loss margins to back office activities and balance sheets. Take up a coordinated approach to minimize working capital demands.

Examine variable costs and capital investments

A quick reduction in cash outflows can be made by reducing variable costs. Consider avenues that might help reduce spending; for example, decrease contract labor and redistribute it to your permanent workforce. Evaluate your capital investments to understand which of them should be reconsidered, and which would be an asset for competitive advantages at a later stage.

Utilize existing assets to generate revenue

If your current revenue streams are under constraint, consider using your assets to generate alternate revenue. For instance, lease your warehouses and transportation fleets to third parties. This may be important for short-term as well as long term cash crunch management.

Analyze business insurance policies

Evaluate the coverage of your business insurance policies in the event of significant disruption as some insurance companies exclude losses caused by pandemics in their coverage policy.

Carrying out regular cash flow analysis can help overcome the issues that lead to a cash crunch in this climate. With some planning, strategic thinking and a quick response, you can continue to steer your business onto the path of success!

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