As the global response to COVID-19 evolves, organisations start to experience significant operational, financial and liquidity challenges. One of the biggest concerns is how to manage cash pressures to be able to ride out the crisis.
While companies will likely require significantly increased levels of liquidity and working capital to keep their business going, the COVID-19 crisis will probably bring other significant challenges too:
Declining sales leading to cash flow and covenant issues under financial agreements
Committed facilities and bank overdraft mechanisms becoming unavailable, withdrawn or denied due to covenant breaches or abuses of denial clauses
Acceleration clauses under factoring programmes being triggered due increased default rates or delayed payment of invoices
Disruption in the organisation’s ability to forecast cash flow
More limited access to or temporary unavailability of capital markets funding
Providing adequate disclosure to investors
How can you navigate cash pressures at this turbulent time?
Install a (financial) crisis team to centralise all actions and take care of internal and external communication
Review finance documentation and identify if there’s flexibility on covenants, cures, force majeure, etc.; additional borrowing capacity and unencumbered assets; review potential intercreditor issues that could arise when taking out additional funding
Assess to what extent you can use the (tax and other) measures issued by governments to optimise your cash position in the short to mid term; check for the availability of additional funding guaranteed by government measures
Update cash forecasts and perform sensitivity analysis, modelling worst-case scenarios and downsides
Use open and transparent communication to build trust and credibility with stakeholders
Assess the position of stakeholders (banks, shareholders and government) and seek partnerships, and renegotiate terms based on the scenario planning performed
Identify cost-saving measures
Update financing plans and consider if your capital’s allocated appropriately or whether you should re-prioritise current capital allocation plans in light of your organisation’s response to COVID-19
