With the COVID-19 outbreak and the nation-wide lockdown, the last few weeks have proven to be a challenging time for businesses who depend on day-to-day cash transactions. Restricted cash flows have made it difficult for them to make timely payments to their employees and suppliers/vendors. The current scenario has had a cascading impact on 60 million+ enterprises with over 110 million people employed by this sector.
According to a survey conducted by Federation of Indian Chambers of Commerce and Industry (FICCI), 80% of businesses have witnessed a decline in cash flow. In the current scenario of economic turmoil, business owners are uncertain of whom to turn to for help.
This is where the role of the Chartered Accountant (CA) comes to the forefront.
Charting the future of the economy
Chartered accountants have come a long way from filing returns for business owners. Today their role extends to helping business owners plan their fledgling enterprises, advising them on undertaking a new venture, navigating through a financial turmoil and preparing for a rainy day. In recent weeks, the need for a CA's advice is more important than ever before as businesses strive to survive the COVID-19 outbreak with their brand intact. For their part, CAs are keen to help businesses get out of this unprecedented hardship unscathed.
The manner in which businesses handle their credit obligations during a difficulty speaks volumes about their preparedness and foresight. While the government reviews the impact on the overall economy and plans a relief package for stressed industries, here are some ways that CAs can help clients take hold of the situation and get through this financial crisis.
How CAs can help business owners: Assess. Advise. Strategize.
At a time when tempers flare and emotional decisions run rampant, you need to review the situation jointly with your clients and business owners and be forthcoming about your assessment. Don't mince words or shy away from the truth, but don't allow them to panic either. Evaluate viable options that can help them stay afloat.
Let's start by looking at the business from these 3 key perspectives.
1. From the financial and operational angle, are cash flows the only problem? While assessing and evaluating these expenses, it is also a good thing to keep a check on payments due from end-customers to help lessen the burden on the cash flow. How much of a business loan has been availed? Are these from the formal or informal lending landscape? Can these be repaid on time and for how long will they be able to afford it? Should they opt for the RBI moratorium announced on March 27, 2020, applicable on agriculture term loans, crop loans and working capital facilities? Even though cash crunches may be the current bone of contention, business owners need to plan for financial setbacks in the next one year.
2. Take a look at it from an employee-friendly angle. Is the business dependent on the physical presence of their employees? Would it be possible to work from home in light of the dependencies on infrastructure, IT, equipment and/or each other? Can these employees' monthly salaries be paid in full? Many smaller businesses run on a pay-per-delivery but can they change this to make advance payments to their employees? This goes a long way in building employer-employee relationships. If they cannot be paid in full due to cash crunches, consider health insurance, medical facilities and other benefits.
3. Another key angle is the business' vendors and suppliers. While it is important to ensure business owners pay their employees on time, it is also crucial to make other time-bound payments, such as to the supply chain providers. Can these payments be deferred without incurring any penalty clauses? Now what if the suppliers have been impacted by the situation as well? Evaluate the stock of products and raw materials and identify alternatives.
Credit as the Way Ahead
While all plans to expand, increase production or boost employee strength may be on hold until the landscape normalizes, businesses should continue to stay connected to their credit profile by checking their CIBIL Rankand Company Credit Report (CCR). The CCR is a record of a company's credit history, based on data submitted to CIBIL by lending credit institutions (banks and lenders) across India. Jointly, the CIBIL Rank and CCR are an indication of a company's credit-worthiness, which can help business owners get faster loan approvals at lower interest rates. The Rank is a numeric summary of the CCR and the business' credit profile, and ranges from 1 to 10 with a Rank between 1 and 4 viewed positively by banks and lenders.
Being aware of their business' CCR and CIBIL Rank can help your clients be credit-conscious and loan-ready to take up a business loan whenever the need truly arises. Besides their credit profile, the company's CIBIL Rank is a reflection of their financial health and can be an added advantage when pitching for a project proposal in the near future. Understanding the importance of a company's CIBIL Rank can help business owners pay more attention to their credit profile and safeguard it during this hardship so that they can emerge from these trying times with their brand intact.
By Sujata Ahlawat, VP and Head of Direct-to-Consumer Interactive, TransUnion CIBIL
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