How to run your business aground in the crisis … or stay afloat for longer

… or stay afloat for longer

Restrictions on outdoor activities, shop closures, social distancing and closed borders are having serious consequences for the economy. Orders are evaporating, supply chains are being disrupted, and the income essential for survival is failing to materialise. What, then, do you do when the spectre of insolvency is slowly but surely appearing on the horizon? Do you simply keep going? Or do you buy some extra time with professional liquidity management and suitable software? Especially during the corona crisis, cash is king!

Receivables

There are still many businesses where duties and areas of responsibility have not been clearly allocated to members of staff. Open items are not systematically followed up and debts are not consistently collected. Of course, there’s a list in the accounting system, but there also needs to be somebody to keep an eye on it. After all, decisions need to be made and carried out – whether in the form of a reminder, a final demand or the sale of receivables (invoice factoring).

Whoever’s job it is, though, he or she will need an overview of all receivables – by amount, age, debtor and other details such as the reasons behind outstanding payments – at a glance and with just a few mouse-clicks, so that outstanding payments can be turned into income as soon as possible.

Payables

Businesses that proceed in a piecemeal fashion according to payment deadlines quite simply go about settling their accounts payable within the time allowed. So far, so good – or is it? With such an approach, those responsible are completely overlooking the fact that delaying payments may well be worthwhile.

It makes sense at times to pay invoices from suppliers or service providers early on in order to benefit from early payment discounts. Given sufficient liquidity, this is in fact the cheapest form of financing. In other cases, however, it is advisable to let the due date pass by and not to pay until later. This is the case, for instance, if a negative account balance is to be avoided. It’s therefore better to keep track of one’s payables and to proceed systematically.

Bank accounts

Those who let things carry on as before and who do not actively manage their bank accounts are missing out on the interest effect and running the risk of overdraft interest. Particularly in times of crisis, it is advisable to manage all bank accounts centrally so that individual transactions and liquidity trends can be reviewed in detail. Only those who have a general overview as well as detailed insights can make the right decisions, act sensibly and stay afloat for longer.

Planning

One could, of course, simply compare outstanding receivables with payables and plan in terms of payment deadlines. Nevertheless, it is ultimately impossible to know how one’s liquidity will actually develop. As we all know, customers only rarely keep exactly to their payment terms: some will pay earlier while others will pay later.

“What if…?” is the crucial question: what will happen to my liquidity if open items or invoices are settled sooner or later? Scenario analyses provide a means for developing different visions of the future, taking account of previous experience and simulating effects. This is how businesses can prepare for all eventualities and make quicker, better decisions.

You, too, can optimise your liquidity management and safeguard your short-term liquidity – with expert know-how and free professional liquidity management software. To find out more, go HERE.