1. Understand minimum cash and liquidity requirements.
An assessment of available cash and liquidity headroom is paramount. Identify how much cash you have globally and where it is located. Assess if it is restricted or readily available for use. Identify the key cash flows that may be exposed. Awareness of cash reserves or shortages, along with the liquidity position, will be a starting point for identifying opportunities to protect and improve your position.
2. Establish a robust short-term cash flow forecast and run multiple scenarios.
Model your cash needs for the next 3 to 6 months. A robust forecast identifies contraction trigger events and quantifies the impacts. Triggering events may include borrowing-base deterioration or a covenant breach. As a part of this exercise, determine whether your existing processes and tools can handle the demands to quickly quantify the impacts. If not, this is the time to make process improvements and look for opportunities to deploy digital solutions.At the same time, explore different scenarios and what-if analyses, such as a drop in sales or a reduction in cash collected, and be prepared to revise them often. If you wait for the complete picture, you’ll be too late to steer the ship. Scenario planning gives management the confidence to make needed decisions and to shape communications about the response strategy.
3. Take actions to protect your position.
Once companies understand their financial position, it’s time to take action so they can (at a minimum) address liquidity and working capital requirements. This will typically involve assessing opportunities to identify the financial and operational levers that can be pulled to conserve and generate cash and potentially increase access to funding.
Bolster credit and collection capability.
Use analytics to target and prioritize working capital levers, such as offering customer discounts for earlier payment terms or reprioritizing customer cash collections.
Evaluate current processes to assess customer credit risk in the current environment and determine any required actions.
Control the flow of outgoing payments.
Consider ways to minimize non-essential outflows, such as discretionary spending, and defer capital expenditures.
Reassess payment priorities by reviewing vendor relationships to consider opportunities to hold or delay outflows.
Implement rapid cost reduction plans that will have a cash impact, such as bonus freezes.
Stem the flow and right-size inventory to sales.
Assess critical material needs and risks to manage supply options.
Recalibrate forecasts, replenishment triggers and targets to control production.
Challenge new orders. Adjust, cancel, redeploy where possible.
Deploy financial tactics.
Ensure lean cash principles are in place. Accelerate repatriation to reduce cash restricted or trapped in foreign subsidiaries or operations.
Consider using credit facilities, as needed.
Enable financing tactics and further leverage the balance sheet, such as supply chain financing solutions.
4. Stand up a central point of control, visibility and communications.
Companies can consider setting up a program management office (PMO) to help ensure consistency in managing the impact of COVID-19 and to rapidly respond to the range of operational and financial issues as they arise. Recognize that any crisis will disrupt the ways that cash moves across the enterprise and then prepare for it. In some cases, this may warrant a cash conservation office that controls expenditures.
5. Develop contingency plans for accounting operations workforce.
Accounting services need special consideration in an overall workforce action plan for COVID-19. It is crucial to maintain the ability to collect and pay invoices during a crisis. Some US companies have outsourced these activities, often to providers with workforces that are based in countries that are just beginning to feel the full dislocations of emergency health measures. Other companies manage accounting in-house locally or through a shared services model. What’s the plan if COVID-19 disruptions take your back office offline?
If your company’s accounting is primarily done:
- In-house at multiple sites or through shared services. Determine where you need to increase or decrease front-and back-office staffing to meet remote work considerations (e.g., increased help desk/support resources, decreased on-site support resources). Some companies are currently testing whether they’re able to close the books and process transactions remotely with staff working from home.
- Through outsourced services. Consider contingent worker and service provider readiness, including policies, capacity, remote access, cyber issues and technology access/readiness for contingent workers. Consider duty of care for contingent workers who may face health or safety risks in the workplace and potential liability for contingent workers who may expose other individuals to health risks. Some large services companies are currently providing “surge services” to temporarily support certain back-office activities for their customers or suppliers.