In 2020, the COVID-19 epidemic broke out. Emergency lockdowns and border controls in numerous countries and cities, which triggered the shutdown of production lines and logistics in many places and the global supply chain was disrupted. Companies with low cash and unstable cash flow are facing the problems and deeply aware of the importance of working capital management.
Based on the survey from Peking University and Tsinghua University, if the COVID-19 epidemic continues to affect supply chain operations, 85% of SMEs in China will face the dilemma of poor capital turnover within three months. The epidemic is unpredictable; thus, even companies with sound financial conditions can not take their working capital management lightly.
What should you do?
Confirm the current assets: Cash, bank deposits, accounts receivable and inventory are good liquidity assets. The accounts receivable must be deducted from bad debts that may not be collected, and the inventory must be considered whether it is really sold. Facing the valuation of accounts receivable and inventories with an honest and neutral attitude can ensure the sustainability of business operations.
Coordinate with suppliers to extend the payment period: One way to retain working capital is to extend the payment time, but it is recommended to reach a co-existent agreement with the supplier partner to maintain the working capital and delivery quality of the overall supply chain.
Managing and accelerating accounts receivable: In times of crisis, companies need to study and centralize the management of accounts receivable, such as ensuring that the accounting department accurately issues invoices and pre-identifying customers who can adjust payment methods.
Consider other financing options: companies need to consider other ways to transform the accounts receivable to value - discount early payment or supply chain financing(factoring). These methods can help companies to speed up the cash acquisition - and BSOS SUPLEX provides both alternatives.
It is extremely important to predict your cash needs based on each kind of emergency. Which part of your supply chain or your business model will be most affected? What are the cash requirements that are not in the plan? What are the expected short-term and long-term funding needs?
The only effective way to optimize working capital is to have a deep understanding of unstoppable changing working capital requirements. Remember, excess cash is useless. If you invest wisely, it can get better returns; however, the shortage of working capital will affect the company's operations - holding too much working capital or illiquid assets is not conducive to sustainable development.
Every business has specific needs.
Does your business need higher working capital financing at a specific time of the year? Does seasonality affect it? Has it been adversely affected by the pandemic, or has the pandemic created unpredictable demand?
Take time to measure how the external environment affects current and short-term business needs, and plan ahead for long-term to ensure the availability of working capital.
Sustainability is not for ourselves, but for all the stakeholders who support ourselves; therefore, the person who is in charge has a lot of responsibilities. One of the most important things is to deploy ahead - think more, faster, and farther than others - so, why not try BSOS SUPLEX for your first step - it’s free now! https://bsostaiwan.pse.is/3y4sfd