Action list for cash and liquidity management in times of COVID-19

Due to the current COVID-19 crisis, companies are preparing for potentially disruptive scenarios which may impact us in the months ahead. Departments are working to stabilize the business, understand the consequences and prepare for an economic downturn. The Finance and Treasury functions plays a central role in monitoring and steering the company’s cash and liquidity situation. We would like to share our thoughts with you about relevant short- and medium-term initiatives.

Short-term initiatives

  • Secure global funding on a daily basis by having daily cash visibility
  • Identify and release trapped cash within the group for efficient use within the group’s operations
  • Contact banks to secure and extend credit lines – use your group’s leverage, and also the ancillary business, to secure lines
  • Obtain an understanding of governmental corporate credit initiatives
  • Establish a detailed three-months cash forecast on a daily basis to identify shortages as early as possible
  • Closely track working capital KPIs:
  • Identify initiatives for improving payment terms at AR and AP – this might be difficult but at least a company has to think about measures that are practical and realistic.
  • Extend or set up factoring and reverse factoring programs. Reverse factoring programs can be set up quickly within 2-4 weeks by using digital platforms rather than bank programs
  • Monitor covenants of your financing activities/simulate stress scenarios for covenant breaches
  • Define an action list for potential covenant breaches
  • Monitor and simulate breaches of bank guarantee KPIs and understand the financial impact
  • Monitor and analyze internal credit risk if you have an existing cash pool structure. Initiate measures to obtain information regarding financial difficulties among your cash pool members in due time to avoid tainting in case of going concern problems
  • Prepare management’s current “going concern assessment.” Document these for creditors and auditors as they will request such documentation in these challenging times
  • Strengthen the cash culture in other departments:
  • Emphasize the need for accurate forecasts
  • Closely track outstanding payments
  • Adjust and tighten credit limits for outstanding invoices with customers – involve your sales and controlling department.

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