Six ways you can protect your cash flows in a pandemic

In business, there is a policy of contingency that provides a ready cushion in case of unexpected events. However, a global pandemic is seldom on any one's contingency list.

The world was thrown off balance due to Covid-19 and impacted many businesses severely due to the subsequent lockdown. Businesses that were once thriving were now scrambling to protect their employees, analyse the new risks to the market, and manage any further supply chain disruptions to curb the spread of the virus. Health and safety took priority at the cost of a crumbling economy.

Small and mid-sized businesses that are typically low on cash reserves and experience inconsistent cash flows became more vulnerable than ever. So, how do we flip this situation in our favour to survive and thrive?

Learning from past financial crises, it is wise for businesses to mitigate the ensuing damage from the corona virus at the earliest and develop a cash management strategy to mitigate overall business risks. Below are tried and tested tips that can help keep cash afloat even when the world is shut down:

1. Robust structures to manage supply chain risk

The biggest issues faced by organisations can be delayed payments by customers for the goods and services delivered, selling goods overseas, etc. Here, understanding the ongoing financial risk of related players in the market such as customers, trading partners, suppliers, etc. becomes a matter of critical consideration. Something as simple as a letter of credit from a bank vouching for the buyer's veracity can prove useful in inventory financing as goods are in transit and are a reliable means of tracking the transaction.

2. Reduction of variable costs

Rather than minimizing fixed costs to reduce cash outflows, organisations can opt for reducing variable costs. Encouraging travel ban, placing tabs on discretionary spending, hiring freezes, redistribution of work to existing permanent workforce, etc. are some methods to preserve cash. When labour is a significant cost line in your business, consider options that might help reduce spend to avoid getting into situations where layoffs are required.

3. Have short-term financing in place

In such circumstances, it is not wise to assume that the previously available channels of financing shall be available currently. However, make the best of new financing schemes rolled out by the government. This pandemic presents the opportunity of interacting better with your financiers to ensure an uninterrupted credit receipt and if needed, explore new channels of credit and finance that are available on short-term basis quickly.

4. Early payment discounting

Though not ideal, discounting your invoices for early payment may be an extremely effective way of generating quick cash-flows during this time. Most banks and a host of new age lending platforms provide invoice discounting facility.

5. Improve operations and tracking

Track your cashflow position on a day-to-day basis. Make sure you have someone who is constantly talking to your clients on receivables. Where possible, collect money from clients who can pay at the earliest. Having an automated way of tracking the cashflow situation and your runway will protect you from unexpected surprises.

6. Shun the microscopic view of business

The entire business ecosystem needs to be paid attention to gauge the possible upstream and downstream impact of the pandemic. High-level risk assessments must be conducted to identify any sole-source suppliers facing a crisis to avoid any problems beforehand. Organisations may even opt to buy out their stake or indulge in takeovers despite being a risky option to protect the supply chain and maintain cash flows.

The corporate world has severely hit a large snag because of the pandemic but has not stopped people from maneuvering their way into adopting creative solutions. Cash flow management is important for the survival of any business organisation. By taking prudent steps, we can safeguard the future of our business and make sure there is a smooth transition to normal business operations eventually.

The author can also be reached at kganeshan@gmail.com