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CRISIS CASH-FLOW MANAGEMENT

It is too early for statistics on business casualties caused by the COVID-19 pandemic. However, one can be certain that those who will survive are the one’s who can manage their cash-flow. After having defined its crisis policy, TCM upgraded its management “dash board” to get a more dynamic view of the situation.

 

Crisis impact on business

Depending on the sector or even on each company, the crisis can lead to either an increase in sales or a drastic reduction. Superstores, home deliveries, production of material such as masks, disinfectant, test kits, etc. which are in short supply due to the circumstances. However, most of the world’s entrepreneurs fall victim to an abrupt drop in their sales. Some creative businesses shift their production to produce products in demand, for instance restaurants becoming delivery caterers or our client the « de Tiense Suikerraffinaderij »  (sugar refinery) who now produce disinfectant gel.  Nonetheless, the manager’s reliable horizon is nowadays set to very short term. The company’s working capital requirements also change at short notice.

 

Working capital requirement in crisis times

Whatever its size and age, any company has a requirement for working capital (WCR). Working capital stands for the liquidity that the company needs at hand to finance current activity, since clients’ payments deriving from such activity take time to be paid.  It’s like in a home kitchen where you need an oven and electricity, and naturally also to first buy the chicken before you can roast it, then eat it. This WCR varies from one company to another, depending on its business model. WCR can be negative (meaning you get your clients’ payments before you start paying on producing what you sell).

Risks can be:

  • An increase in sales: your working capital increases (to finance more production);
  • A reduction in sales: your WCR increases as a percentage of your turnover, because many charges do not decrease or only slightly in proportion to sales. At the same time your working capital decreases with your income.

 

In any event: watch your cash-flow

To finance your WCR, there is only your cash-flow (sourced by your activity or borrowed). Managing your cash-flow carefully is – more than ever – paramount in pandemic times.

For years, TCM had its dashboard listing key facts including income, outgoings and liquidities. Our development was stable (+21% turnover in 2019), trends were acknowledged, and our tool was satisfactory.   But the brutal occurrence of quarantine has forced us to implement new parameters and scenarios in our analysis model.

We have therefore developed a progressive (and graphic) view of the components of both our income and our expenses; which allows you to make assumptions and assess their consequences. These are the kinds of business games that you play as a student, but more rarely in a small business environment that functions.

As a debt collection institution, we have noted that, in the last 15 days, we have received 20% less new claims as compared to January and February. Incoming calls from debtors have dropped by 60% in the same period. Collections (debtor’s payments) have dropped as well although less than first anticipated. We’ll come back to this when we have more perspective.

 

Conclusion

In a few months, we will establish if some have had luck (Euromillions is still running) or have understood how to maintain their cash-flow and manage their working capital requirements.

 

TCM collects your receivables in Belgium and more than 100 countries.  Please contact us if you wish details.

CRISIS CASH-FLOW MANAGEMENT

It is too early for statistics on business casualties caused by the COVID-19 pandemic. However, one can be certain that those who will survive are the one’s who can manage their cash-flow. After having defined its crisis policy, TCM upgraded its management “dash board” to get a more dynamic view of the situation.

 

Crisis impact on business

Depending on the sector or even on each company, the crisis can lead to either an increase in sales or a drastic reduction. Superstores, home deliveries, production of material such as masks, disinfectant, test kits, etc. which are in short supply due to the circumstances. However, most of the world’s entrepreneurs fall victim to an abrupt drop in their sales. Some creative businesses shift their production to produce products in demand, for instance restaurants becoming delivery caterers or our client the « de Tiense Suikerraffinaderij »  (sugar refinery) who now produce disinfectant gel.  Nonetheless, the manager’s reliable horizon is nowadays set to very short term. The company’s working capital requirements also change at short notice.

 

Working capital requirement in crisis times

Whatever its size and age, any company has a requirement for working capital (WCR). Working capital stands for the liquidity that the company needs at hand to finance current activity, since clients’ payments deriving from such activity take time to be paid.  It’s like in a home kitchen where you need an oven and electricity, and naturally also to first buy the chicken before you can roast it, then eat it. This WCR varies from one company to another, depending on its business model. WCR can be negative (meaning you get your clients’ payments before you start paying on producing what you sell).

Risks can be:

  • An increase in sales: your working capital increases (to finance more production);
  • A reduction in sales: your WCR increases as a percentage of your turnover, because many charges do not decrease or only slightly in proportion to sales. At the same time your working capital decreases with your income.

 

In any event: watch your cash-flow

To finance your WCR, there is only your cash-flow (sourced by your activity or borrowed). Managing your cash-flow carefully is – more than ever – paramount in pandemic times.

For years, TCM had its dashboard listing key facts including income, outgoings and liquidities. Our development was stable (+21% turnover in 2019), trends were acknowledged, and our tool was satisfactory.   But the brutal occurrence of quarantine has forced us to implement new parameters and scenarios in our analysis model.

We have therefore developed a progressive (and graphic) view of the components of both our income and our expenses; which allows you to make assumptions and assess their consequences. These are the kinds of business games that you play as a student, but more rarely in a small business environment that functions.

As a debt collection institution, we have noted that, in the last 15 days, we have received 20% less new claims as compared to January and February. Incoming calls from debtors have dropped by 60% in the same period. Collections (debtor’s payments) have dropped as well although less than first anticipated. We’ll come back to this when we have more perspective.

 

Conclusion

In a few months, we will establish if some have had luck (Euromillions is still running) or have understood how to maintain their cash-flow and manage their working capital requirements.

 

TCM collects your receivables in Belgium and more than 100 countries.  Please contact us if you wish details.

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