How To Maximise Working Capital During The COVID-19 Crisis?
The ongoing COVID-19 pandemic has emerged as one of the
challenges for the business sector. It has not only hampered the
financial performance of small and medium-sized firms but has
also hindered the profitability of large companies as well.
As per reports, sectors like tourism, hospitality, air
transportation and entertainment are among the worst-hit ones.
Other than those businesses in retail, consumer goods and
commodity-oriented industries are also hit hard.
Besides the global crisis, disrupted supply chains and depleting
cash reserves of businesses has increased the cash flow gap.
Additionally, the pandemic-triggered recession has led to a
massive liquidity crunch in the market, further widening the
credit gap. Nonetheless, with the help of effective
treasury management in addition to implementing financial
strategies, companies can
maximise working capital and combat the impacts
That being said, take a look at the impact of this global
crisis on working capital management.
Impact Of Crisis – In A Nutshell:
Some of the immediate impacts of the pandemic on cash management
are discussed below –
Cash Flow And Liquidity Crunch - Poor working
capital management, coupled with the delay in receiving
payments from customers, have subjected businesses to severe
cash crunch. Additionally, the stagnation in sales has led to
the accumulation of stocks and has resulted in a liquidity
Disruption In The Supply Chain - The impact
of this pandemic has disrupted supply chain globally and has
hampered the overall production process to a great extent.
One of the most noteworthy problems persisting in the supply
chain is the inability of businesses to procure raw
materials right away.
Increase In Credit Risk
- This entire phase witnessed an upsurge in
the rate of reported defaults, bankruptcies and
Irrespective of their scale and size of the operation,
businesses can improve their current financial performance by
effective working capital management strategies. It will also prove useful in liquidity
management, thereby improving financial performance
Tips To Maximise Working Capital During Crisis:
These are among the most effective strategies for
maximising working capital –
Emphasise On Cash-To-Cash Conversion Cycle
To combat the impact of the crisis, companies should focus on
minimising their working capital requirement. One of the best
ways to do so is by emphasising on a company balance sheet,
especially in areas like accounts receivables, accounts payable
Reducing the firm’s variable cost is probably one of the
quickest ways of lowering its cash outflow. In fact, swapping
fixed costs to variable expenses proves useful in preserving
- Improve Inventory Management
Shortage of raw materials has disrupted the supply chain of most
sectors to a great extent. Businesses are now advised to update
their inventory safety parameters to gain better insight into
the demand and supply side volatility. They should try to secure
additional inventory to buffer the impact of prolonged
disruption in the supply chain and subsequently strategise to
clear the existing stock of finished goods.
- Evaluate Immediate Liquidity
Having a fair idea about the immediate and future cash flow
helps businesses to ascertain their financial standing. It helps
in developing suitable strategies for sound liquidity management
and modifying the capital management plan and investment
strategies. For instance, it will allow businesses to decide
which capital investments should be reconsidered in this current
situation or delayed altogether.
Identify And Assess Financial And Operational Risks
A business needs to be more active when it comes to monitoring
increasing indirect costs and assess their impact on overall
product margin. An active outlook will help to lower unnecessary
costs and will help mitigate financial risks successfully.
- Consider Alternative Financing Options
Maintaining working capital at all times is essential to cope
with the impact of COVID-19 on business. Since both production
and sales are stagnated, the scope of maximising working capital
is relatively narrow. However, the best way to inject cash flow
into business is by looking for alternative financing options
invoice discounting. Such a funding option availed from KredX enables companies to
raise a substantial amount of funds within 24 to 72 hours*
against your businesses’ unclear invoices.
Other than these, businesses may also consider adopting
technological solutions related to payment management and
cloud-oriented treasury to
maximise working capital effectively.
KredX is India’s leading integrated cash flow solutions
provider that allows companies to get quick access to
working capital by utilising their unpaid invoices. You too can
raise funds and shorten your firm’s working capital cycle
by uploading unpaid invoices on our portal.