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Responding to Covid-19: Cash management during an unprecedented crisis

Tom Rooney - March 24, 2020

Almost two years have passed since the events of the day last gave us cause to discuss the tenets of prudent cash management during a crisis.

Unfortunately, the incidents we then cited as crises were trivial compared to what continues to unfold due to the outbreak of Covid-19. 

And yet, the processes required to navigate these circumstances remain the same. At CashAnalytics, we are acutely aware of the difficulties countless businesses are currently working tirelessly to overcome. 

This is why, during this unsettling time, we hope to be a useful resource for any company that might benefit from our insights.

Vital Role

Needless to say, the treasury team will always play a vital role in the crisis management strategy of large and complex multinationals.

Having a worldwide presence is so often advantageous for organizations, however, it can also leave them particularly vulnerable to an abrupt slowdown in global trade. 

A business may have robust and well-tested contingency plans in place but certain developments, namely the pandemic currently wreaking havoc on the world economy, are essentially impossible to safeguard against.

Unfortunately, as of now, there is also no way of accurately predicting the ultimate impact – human or economic – coronavirus will have before it has been suitably contained.

Taking Action

However, certain industries, such as commercial aviation, have already taken drastic action based on how they see events unfolding in the coming months.

And, while this action does little to fuel optimism in the short-term, it shows the necessity of responding decisively to the situation at hand. Corporate treasurers, in these scenarios, will be judged on their response to this heightened demand on their time, expertise and processes.

Crises invariably have a financial effect on a business. As such, when a crisis does occur, the attention of the relevant stakeholders will quickly turn to treasury, whose daily responsibilities generally include identifying, managing and mitigating cash flow and liquidity risk.

Accessing Liquidity

Ultimately, the efficacy of a treasury’s response to a cash crisis is likely to hinge on access to internal and external liquidity.

As previously stated, immediate recourse to real-time cash reserves, across business units, geographies, and, currencies is essential, so potentially decisive managerial decisions are being informed by the latest data.

Externally, treasurers must determine how much undrawn liquidity is immediately available and the level of support financial backers are willing to provide if the situation deteriorates.  

A swift influx of cash might well prevent the crisis from becoming unmanageable, but banks will want to know the potential impact on covenant and profitability levels, so these will need to be at the treasurer’s immediate disposal.

Performing regular cash flow scenario analyses will reveal the most up-to-date cash positions and indicate the right time to request funding.                                              

Satisfying Stakeholders

The CFO, for instance, will continually demand real-time, group-wide updates on current and future cash flows and balances. Other stakeholders, such as banks or shareholders, are certain to ask any, or all, of the following questions:

  1. What damage has been done? (How has this affected cash flow/working capital?)
  2. What action needs to be taken now, if any? (Is fundraising required to shore up liquidity?)
  3. What further damage may be done if the issue continues? (What are the effects on cash flow of continued disruption to this revenue stream?)
  4. How can we alleviate that damage as much as possible? (What changes can be made to absorb the impact?)

Treasury’s ability to answer in a quick and cogent manner will largely depend on how well their cash and liquidity processes are functioning. Connectivity will also be key.

The better treasurers are connected to the overall business, the quicker they’ll be able to conduct an on-the-ground analysis of the crisis’ true impact, then relate these findings to the C-suite, who can draft a plan of action accordingly.

Intense Focus on Re-forecasting 

Treasurers might well have cause to evaluate the reliability of their cash flow forecasting process, particularly if it is not giving a clear view of accounts receivable and accounts payable. What’s more, to measure the impact on working capital, they must also be able to easily factor diminished – or shut off – revenue streams into the forecast.

Finally, when disaster does strike, an automated forecasting process will not only enable treasurers to provide real-time reports that their CFO’s are sure to insist on but also deliver them with a level of speed and accuracy manual processes simply cannot provide.

CashAnalytics has automated the cash management and liquidity reporting processes of multinationals in more than 40 countries. Our clients benefit from immediate recourse to group-wide, real-time visibility over all their current and future cash balances and flows.  

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