7 Steps to manage cash flow and financial headwinds

The economic consequences of the Coronavirus disease 2019 (COVID-19) on future trading assumptions, and the direct impact on many companies, may place some companies under liquidity pressures. We understand these pressures and have compiled some tips for managing cash flow and mitigating any potential impact on your debt obligations.

1. Change your approach to cash flow forecasting

Companies that have not faced a liquidity crunch before can find it quite demanding to change their cash flow management. However, by moving to a receipts and payments basis, conducting daily forecasting and integrating short- and medium-term forecasts, you can likely increase headroom to implement other actions and build confidence with shareholders and lenders.

2. Conduct stress tests

By stress testing your forecasts for different impact scenarios, you can gain better clarity on the sufficiency of your liquidity. This can help you inform an appropriate response to your financial stakeholders, who may be asking you to implement a variety of new measures.

3. Make sure you’re still in compliance

Check to ensure that you’re still compliant with the terms of your debt obligations, including the representations you may have to make on any drawdowns.

4. Be proactive in speaking to your lenders

The more notice you can give your debt provider of the impact of COVID-19 on liquidity, the greater chance there is of getting the flexibility you may need.

5. Prioritize existing stakeholders

While new money could be raised from third parties, it will potentially be both expensive and difficult. Most often, your business’s existing shareholders and lenders should be your priority.

6. Model your working capital

Certain types of debt facilities are more-quickly impacted by downturns in trading. This is especially so for asset-based facilities where available funding is driven by debtor and stock levels. This makes it essential to carefully model the impact of trading on your headroom levels.

7. Review temporary finance options

Other sources of temporary financing might be possible—and these are changing every day. To get access to the latest information, it’s always a good idea to speak to a specialist.