Three things you can do right now to meet the challenge of COVID-19 in your finance department.
By Brian Shannon, Serrala SVP
Well, this has been some few weeks. Might even say of historical proportions. But with this uncertainty comes, believe it or not, opportunity. Opportunity to make a move that defies the status quo and best positions your organization for success in the weeks, months and years to come.
The recent market volatility and the significant impact from social distancing and virus-isolation will pose challenges to our business models – B2C, B2B alike. The larger risk in such a fast-moving economic event is not just in the sales order book or cash register, but in the underlying capital structures that support our cash flows.
Back in 2008 when the financial crisis was at its nadir, moderately and highly leveraged organizations alike were hunting for credit, and it was largely unavailable. This precipitated a further spiral down, and companies had to rely on credit from vendors who in turn had to ensure that the cash inflows from Customers would meet their own needs. It was a co-dependent cycle that forged tighter business relationships and surely kept many companies solvent.
Fast forward 12 years and we are now again faced with Balance Sheet and P&L challenges. Here are three things you can do right now to continue to move your business forward:
- Preserve your vendor credit lines. Get on better terms with your vendors, literally. Pay them on time or negotiate some extended terms where there is mutual benefit. Abandon the 120-days+ payment terms demands of your vendors if you have such programs in place. Arbitrarily setting such terms not only hurts your supplier relationships, but could put your own business at risk if the supplier can’t supply. Invest in process optimization that reduces friction in the Invoice to Pay process by simplifying workflows and automating functions.
- Effectively monitor your Accounts Receivable balances. Receiving and applying cash quickly and accurately can serve to ensure that you are not impeding on available Customer credit. Keep a shorter leash on the late payers, and more proactively set Credit Management parameters. Look at new ways to receive payments that simplifies the process by removing impediments for your Customers.
- Pay closer attention to billing and shipping accuracy. Your Customers are going to get expert at looking for reasons not to pay…don’t give them any. But as is the case with any economic downturn, bad debts and deductions rise. Be prepared with your best possible prevention. For when it happens, and it will, ensure you have a solid case management process and tool to manage the disputes.
Some of these actions are short and medium term in duration. Implementing new processes obviously takes time, but by investing in such improvements now you will be setting up your organization for an improved chance of success in the continued uncertainty. This uncertainy provides an opportunity for placing cash back on the throne as king and ensuring that related business processes and technologies support your organizations cash flow needs.