The economic consequences of the Coronavirus disease 2019 (COVID-19) on future trading assumptions, and the direct impact on many companies, may place some companies under liquidity pressures. We understand these pressures and have compiled some tips for managing cash flow and mitigating any potential impact on your debt obligations.
1. Change your approach to cash flow forecasting
Companies that have not faced a liquidity crunch before can find it quite demanding to change their cash flow management. However, by moving to a receipts and payments basis, conducting daily forecasting and integrating short- and medium-term forecasts, you can likely increase headroom to implement other actions and build confidence with shareholders and lenders.
2. Conduct stress tests
By stress testing your forecasts for different impact scenarios, you can gain better clarity on the sufficiency of your liquidity. This can help you inform an appropriate response to your financial stakeholders, who may be asking you to implement a variety of new measures.
3. Make sure you’re still in compliance
Check to ensure that you’re still compliant with the terms of your debt obligations, including the representations you may have to make on any drawdowns.
4. Be proactive in speaking to your lenders
The more notice you can give your debt provider of the impact of COVID-19 on liquidity, the greater chance there is of getting the flexibility you may need.
5. Prioritize existing stakeholders
While new money could be raised from third parties, it will potentially be both expensive and difficult. Most often, your business’s existing shareholders and lenders should be your priority.
6. Model your working capital
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. This makes it essential to carefully model the impact of trading on your headroom levels.
7. Review temporary finance options
Other sources of temporary financing might be possible—and these are changing every day. To get access to the latest information, it’s always a good idea to speak to a specialist.
- The Trade Commissioner Service published a summary of government resources for business, available here.
- The Business Development Bank of Canada published information on loans, available here.
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We understand that you want to be agile and responsive as the COVID-19 situation unfolds. Having access to experts, insights and accurate information as quickly as possible is critical—but your resources may be stretched at this tim.
We’re here to support you and your team as you navigate through the impacts of COVID-19 on your business.
The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application, the reader should seek professional advice.