Seven simple steps to protect your cash flow and working capital in challenging times
The COVID-19 virus is just the latest example of how quickly disruption to your business can happen. The current market upheaval in response is a strong reminder of why it is important to be prepared for economic uncertainty.
Regardless of how well your company is positioned to adjust financially in the days ahead, there are steps you can take even now to make sure you are better prepared to navigate the uncertainty of tomorrow—whatever it may hold.
Below are a few options for your business to consider quickly:
1. Make sure you have trusted backup support
Most banks like Umpqua are well prepared from a planning standpoint to keep your business going when major disruption occurs. The question for many businesses is whether they have planned thoroughly enough on their end. If the employee in charge of critical banking transactions is out sick or quarantined, for example, does someone else have system access and authorization to conduct transactions. Given the current volatility of public health, now is the time to make sure there is backup for key employees and that those with essential functions have reinforcements to keep your business going.
2. Prioritize fraud prevention solutions
Criminals thrive on exploiting crisis situations, which leads to an increase exposure to fraud and cyber theft. There are basic steps you can take to protect your business during this time. Ensuring dual authorization on all online banking transactions such as wires banking transactions, as well as exercising vigilance around all urgent email requests for funds disbursement (“phishing”) are good first steps. “Positive Pay” is also a low-cost solution that that helps prevent check fraud.
3. Make payments with your commercial card
Commercial cards can do much more than cover employee travel and entertainment expense. They can be very useful when supply chains are disrupted. That is because using commercial cards in lieu of checks to pay bills creates a time buffer on payments—at least 30-45 days, reducing pressure on your cash flow. Setting up a card program with your bank can happen quickly if you do not currently have one. If payments are being stretched, now is a good time to do it.
4. Move to integrated payments
One way to both maximize and protect working capital during this time is to move to integrated payments and fully automate the receipt and processing of invoices. All your various payable methods can be integrated into a single payment file for the bank to process. Integrated payments will not only save you time and money, it will reduce the risk of human error and fraud.
5. Remove checks from the payments process as much as possible with online payments
With online payments, your clients will be able to issue payments from anywhere, ensuring you are paid on time in the event of further disruption. You can also issue payroll for your employees electronically, which will help keep your business running smoothly.
6. Diversify supply chains as quickly, but smartly, as possible
COVID-19 is adding to the pressure on supply chains, especially those dependent on offshore suppliers of goods and services. The disruption is delaying the delivery and payment of goods and services, which is impacting cash flow. If your company has too much offshore exposure, it is as critical as ever that you find alternate markets to limit risk. A good commercial bank with international expertise can help you access these new markets quickly and finance them cost-effectively.
7. Consider fixing more of your floating rate debt
We are in an environment where swapping floating debt for a fixed rate could make sense. Interest rates are at historic lows and trending downward as a result of the virus. As rates fall, the cost of financing falls with them. Locking in a low fixed rate for new or refinanced loans may provide near-term savings and long-term stability of financing costs. A sophisticated commercial bank should be able to help identify and implement the optimal financing solution.
These financial options are a good starting point for a conversation with your bank. Today it is COVID-19. Tomorrow it will be another challenge to navigate. In an uncertain economy, now is always the right the time to prepare for your company’s future.
One Last Word
While it is spreading all around the globe, let’s hope Covid-19 will be behind us soon.
In the meantime, it is critical to take steps to prepare as best we can. At very minimum, take time to think through “what-if scenarios” and develop basic strategies to help you respond and JMD Systemics, a division of King Global Earth and Environmental Sciences Corporation can help you to do so.
Last but not least, take all necessary steps to protect yourself and your staff while you help others. Stay safe!
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Michel Ouellette JMD, ll.l., ll.m.
A division of King Global earth and Environmental Sciences Corporation