How to maintain liquidity during the Coronavirus pandemic

10 ways of positive cash management.

The Coronavirus heavily impacts the economy as for many companies normal economic activity has come to a standstill, especially for businesses that were forced to close temporarily. Optimization of cash positions and business continuity preparedness is therefore essential for companies who are facing a cashflow strain due to ongoing payment obligations and a reduced incoming cashflows. In this article we discuss 10 ways of positive cash management for entrepreneurs to maintain liquidity.

1. Reforecast trading and cashflows

It is important to reforecast trading and cashflows as accurately as possible. For the next 12 months it must first be determined what revenues can (still) be expected and which costs are to be accounted for. This means you should assess which fixed or recurring costs can be reduced and which potential issues should be prioritized: anticipation is of key relevance.

2. Show flexibility towards your debtors and customers

Your debtors and customers are probably impacted by the corona crisis just like yourself. This means they might be facing liquidity issues in turn as well and you should make it convenient for debtors to pay. Arranging (extended) payment terms can help you create a consistent cashflow coming into your business, while providing your customers with additional relief for not having to make a payment in full at once. You can also ask for a deposit or partial payment up-front (down-payment / retainer). Furthermore, you can also communicate with your customers to see if they are willing to pay ahead of schedule or discuss a possible stimulus by providing discounts to accelerate your receivables (with due observance of the margins in the long-term).

3. Start a dialogue with your creditors and suppliers

If you can delay or reduce the amount of cash flowing out of your business, it will help reduce the strain on your working capital. Find out if you can discuss payment in terms or discounts. Be honest with your creditors and supplier to negotiate payments or to inquire about delaying payments.

4. Inventory management

Inventory management is one of the biggest factors that can impact your working capital and business liquidity. Efficiently and effectively managing your business assets can greatly reduce the cashflow strain. Examples include minimizing the stock inventory in line with the actual (and expected) demand, and communicating about accelerated delivery times from your suppliers and, in turn, possible delay in delivery towards your customers. It is important to manage expectations from a realistic perspective and find out which customers prioritize what products the most.

5. Asset management

Determine which business assets / machinery are affected under the reduced economic activity and are no longer being used (temporarily). Discuss if it is possible to postpone payments regarding rental or lease agreements of unused assets, or if the owner explore ways to generate short-term income.

6. Agree (or renegotiate) on additional or alternative rental terms

Usually rental costs for the accommodation are a substantial expense, which under reduced economic activity and lack of revenue heavily impact the liquidity. It is therefore important to start a dialogue with the lessor and discuss the possibility of (temporarily) suspending your rent payments or discounted service fees regarding rent, or the costs for water and electricity. Please note that additional (or alternative) terms and conditions to existing agreements must be agreed upon in writing to avoid misunderstandings.

7. Request deferral of (re)payment from your bank

In case of an impending critical liquidity shortage you can request deferral of (re)payment to your bank loans. As most larger Dutch banks will grant you relief relatively easy and up to six months, this would be a standout opportunity to boost your company’s liquidity.

8. Apply for additional credit from your bank

Additionally, under the threat of a critical liquidity shortage you can also file a request for a bank loan. The government introduced guarantee scheme measures in their stimulus package which basically make it easier for companies in the Netherlands affected by the corona crisis and reduce the related risks for the capital providers. Please note that you are still required to submit proper supporting documentation when filing a request for bank financing.

9. Secure an instalment arrangement plan regarding your pension provider

Employers which are (temporarily) unable to pay their employees’ pension premiums, may under circumstances qualify for deferral of pension payments. Communicate with your pension provider and see if you can obtain any sort of relief regarding the pension payments.

10. Explore and use government support packages

The Dutch government has decided to implement a series of economic measures to help businesses that have been affected by the corona crisis. Examples include special deferral of payment for income tax, corporate income tax, VAT and wage tax, and if you expect a lower profit (or even a loss) of your business, reduction of provisional tax assessments and other support (such as financial help for employers to help pay their employees’ wages). Please visit our dedicated Corona Reporting website.

Contact our Corona Crisis Team »

28 April 2020