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Cash Flow Management Strategies to Aid Supply Chain

2020 has been a heavy year for small businesses. Many companies have begun pivoting risk management strategies to focus on the parts of their businesses that have most severely felt the impact of the COVID-19 pandemic such as employee protection plans and managing supply chain disruptions.

CFOs have been caught in the thick of all of the action and madness. The main priority has been to weather the storm and the accompanying business shocks while also ensuring survival. How do companies emerge when the dust settles in the best possible shape?

CFOs play a critical role in navigating the volatile business landscape. A key to managing cash flow is to make cash as visible as possible across the board particularly in territories most involved and impacted. Supply chain strains have compelling implications on cash flow. In order to execute damage control, businesses must anticipate and mitigate potential risks by taking on an end to end supply chain perspective. We have identified several strategies implemented by successful CFOs steering the ship.

1. Balance

This strategy is all about stabilization and focuses on effective communication. CFOs must first understand the financial risks for customers, suppliers, and stakeholders. Many leaders are reformulating their stakeholder communication strategies to ensure liquidity and preserve cash to remain agile.

2. Scenario planning

We do not recommend that companies hold their breath and take a wait and see approach regarding their risk management strategy. It's important to play out any and all possible business implications for organizations. Understand how much cash is needed and for how long to emerge from the turmoil and ensure financing partners or lines of credit are viable options.

3. Cash conversion cycle

Under normal circumstances, many businesses refer to profit and losses to inform their bottom line. Now, CFOs are shifting their focus to the balance sheet. The three key variables in supply chain working capital are inventory, payables, and receivables. Normally, CFOs focus mainly on inventory; however, in an effort to reduce working capital requirements during the pandemic, CFOs are addressing all three areas in order to stay as lean as possible by taking a holistic approach to operational planning to support performance.

4. Audit Costs

CFOs are revisiting variable costs and reducing the outflow of cash by cutting spending in areas of excess or by converting fixed costs to variable. It's imperative to make sure the organization is paying the right amount in procurement costs. We have seen companies expedite receivables to accelerate collection in order to meet consumer demand. It's important to double-check that businesses are collecting the right amount for receivables and are not overpaying duties or taxes.

Every company is in a different position at the moment, but CFOs can all take a similar approach to plan ahead, pursue an offensive portfolio strategy, and kickstart digital transformation plans to support the next business normal.

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