Top Tips for Better Cash Flow Management

Matt Shirley and Stuart Davies, Grant Thornton have put together some top tips on cash flow management amid the COVID-19 outbreak.


There have been several announcements of government-backed initiatives this week that have been put out to support businesses (Coronavirus Job Retention Scheme, Coronavirus Business Interruption Loan Scheme), but managing cash flow until the benefits are released will be hugely critical.

 

Change your approach to cash flow forecasting

Companies that have not faced a liquidity crunch before can find the actions needed to change their cash flow management processes overly demanding.

However, moving to a receipts and payments basis, daily forecasting and integrating short and medium-term forecasts almost always increases headroom, runway time to implement other actions and confidence with shareholders and lenders.

 

Stress testing forecasts

Stress testing forecasts for different impacts, scenarios will help provide better clarity on the sufficiency of liquidity and inform the required actions and asks of financial stakeholders.

 

Check your compliance

Check your compliance with the covenants and obligations in your various debt facilities, including the representations that have to be made on any drawdowns.

 

Be proactive in speaking to your lenders

The more notice that you can give your debt provider on the impact of COVID-19 on trading performance and liquidity, the more chance there is of getting the flexibility you may need.

 

Certain types of debt facilities are more quickly impacted by downturns in trading

This is especially so for asset-based facilities where available funding is driven by debtor and stock levels. Careful modeling of the impact of trading on headroom levels is essential.


Other sources of temporary financing include deferral of monies due to HMRC through a “time to pay” arrangement, customer payment profiles and asset-specific finance.

 

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