3 tips for cash flow management during a crisis

When an unexpected event disrupts normal operations and threatens the financial health of a business, there needs to be a clear understanding of the current economic situation to allow in making proper decisions. That includes assessing the short-term situation and reviewing treasury management for proper cash flow management.

The resulting inability to cover expenses can then put your business at risk. It means, therefore, assessing your situation and your treasury management. The idea behind this is to optimise your financial risk, cash flow, working capital and funding sources. For effective cash flow management during tough times, here are things you must focus on:

Take Time to Evaluate your Financial Situation

What is your current working capital? Evaluate your account payable, account receivable, credit facilities and cash assets. To calculate the current cash flow, you will need to factor in cash available within a specific period of the disruption. Knowing the health and the position of your finances can help to fine-tune your business model and offer you the information needed to determine if you:

• Can get your business to how it was before the disaster struck and how that can be done
• Should expand, shrink or close your business

Avoid falling into the trap of too much optimism. For instance, if there are clients whose accounts are in arrears, do not count on their funds. If they were not able to pay you before the onset of the uncertain times, they might not pay you now.

Be sure you have a good understanding of your guarantees, margins and credit facilities. Determine if you have the funds needed to obtain special financing or margin coverage. It is also critical that you identify your pain points of repayment and priority debts. In light of the predicament, you might need to negotiate new repayment terms.

Collect Your Debt

In times of uncertainty, what should you as a business do when customers have no financial means to meet their invoices? What about in circumstances where they have declared insolvency? During such times, it is crucial to keep it in mind that most companies find it tough to pay their incoming invoices.

Sometimes, such as during the 2008-09 Great recession and the 2020 COVID 19 pandemic, the global economy tends to slow down, leaving many firms with liquidity challenges. In such times, cases of debt recovery become rampant. However, despite the crisis, your company still needs compensation.

This is where a competent debt collection agency comes in. Debt collection firms do everything in their power for the best outcome and are keen to deliver expert solutions efficiently. There are certain debt collection procedures that need to be followed during such times that are unique to every country.

Prepare Cash Flow Forecast

The full cash cycle of every business is the time taken for a lead to know the firm, become a client and make the first payment. While the number of days defining this cycle may vary by industry, it is crucial that you prepare your cash flow forecast. You might need to plan week by week, daily or monthly. These decisions should be based on the complexity and the scale of your business. Try and make your projection for 4-6 weeks accurately.

Begin by forecasting your expenses. What are your current ongoing financial obligations? Make an elaborate list of things you need to pay for, such as rent, ads and loans, among others. Write them down, including the amount needed and the due date. In case they are many, refer to your credit card or bank statement to check other expenses.

You will also need to forecast revenue. What is your current weekly revenue? In times of predicaments, many businesses register sales fluctuations, so be accurate and realistic. Begin by noting down any guaranteed revenue. You could make a prediction of whether the numbers will keep going up, stay the same or make a downward shift. When a large portion of sales is from first-time customers, a prediction may be tough.

However, you could still try and get closer to reality. The best practice in such times is to look at past data and make a future projection because historical data takes account of seasonality. If you already have a business budget that you use to predict your cashflow, use it during the uncertain times to create a different scenario. This should help you get a picture of how the sales changes will impact your cash.

For many businesses or even international debt collection networks with cross-boarder markets and sales, collecting outstanding debts is a real challenge, that’s why an in-house debt collection agency is the ultimate choice to deal with such cases. We are a debt collection agency located in Algeria, we collect amicably your outstanding trade debts under no collection, no fee basis, we also provide legal debt collection services, to know more contact us at contact@dzacs.com