How to Manage Working Capital While Fighting COVID-19,

How to Manage Working Capital While Fighting COVID-19

COVID-19 has had a tremendous impact on the Indian economy. Many new businesses and established ones were shut down during the pandemic owing to financial hurdles. Besides, it had a huge impact on individuals as businesses were facing challenges in backing their employees. While these are unexpected changes, it’s a fact that we need to adapt to this new normal. One of the biggest challenges faced by business owners is managing the cash flow. In today’s blog, let’s look into how businesses can manage working capital finance during a crisis.

How to Manage Working Capital Finance During a Crisis

After the sudden breakdown, businesses are focusing on protecting employees, understanding the risks to their business, and managing the supply chain disruptions caused by the efforts to contain the spread of COVID-19. While the full impact of this epidemic on businesses and supply chains is still unknown, with most optimistic forecasts predicting that everything would be normal soon, rising coronavirus cases make it doubtful.

Businesses in tourism, hospitality, entertainment and air transportation have been particularly hard-hit in the short term. Given the importance of cash flow in times like this, companies should immediately develop a depository plan for cash management as part of their overall business risk and continuity plans. 

  • Have a Robust Framework to Manage Supply Chain Risks

Supply chain management is a complex challenge, and finance-related problems only add to the risk. Do you know if any of your customers are in trouble and might be unable to pay for the goods and services you deliver?

If you manufacture a product and want to sell it to someone outside your borders, you typically require a letter of credit from a prime bank that proves the buyer can pay. This letter of credit not only provides a source of ultimate payment but can also be used to secure inventory financing while the goods are in transit, so it’s important to make sure these letters of credit are still reliable.

  • Keep Pace with Financial Options Available

In these circumstances, don’t assume the financing options you previously had available to you will continue to be available. Instead, undertake scenario planning to better understand how much cash you’ll need and for how long.

Use this opportunity to actively engage with your financing partners to ensure your available lines of credit remain available and explore new or additional options should you require them.

  • Prioritise cash-to-cash conversion cycle

Under normal business conditions, companies primarily focus on profit and losses–growing the top line while managing the bottom line. As a result, routine back-office activities such as paying bills and turning receivables into cash are often taken for granted.

In the current abnormal business conditions, smart companies shift their focus from the income statement to the balance sheet. Of the three elements of supply chain working capital–payables, receivables, and inventory–, supply chain executives focus on inventory. But, to minimize working capital requirements during challenging times, it’s important to apply a coordinated approach that addresses all three areas.

  • Revisit capital investment plans

With cash flow forecasts in mind, consider what’s really necessary for the near term. What capital investments can be postponed until the situation improves? What capital investments should be reconsidered? What capital investments are required to position for the rebound and for creating competitive advantage?

Balancing the demands for more buffer inventory and managing cash flow may not be as easy as it sounds. Sustainable savings will most likely require fundamental improvements in end-to-end supply chain inventory visibility, demand planning, inventory, and safety stock policies, production planning and scheduling, lead-time compression, network-wide available-to-promise, and SKU (stock keeping unit) rationalization.

There is nothing that you can’t beat if you have a solid plan for that. The same goes with crisis; there is always a way, all you need is courage to find the solution. Oxyzo offers unsecured business credit up to two crores for working capital requirements. Apply for credit now.

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