Insight & Analysis

Strengthening cash visibility and management for the challenges ahead

Published: Apr 2020

COVID-19 has quickly become the ultimate X-factor for corporate treasurers. There’s no telling how deep the total impact on global financial markets will be or how long it will last, but there’s every possibility that things get worse before they get better. What can treasurers do?

Ongoing data from Treasury Coalition has made clear just how dire the situation is for corporates’ cash management. A project led by the consultancy Strategic Treasurer, Treasury Coalition has been surveying 500+ global organisations weekly since the pandemic began. The extensive survey has been able to compare corporates’ outlook on economic recovery timelines, debt and liquidity challenges, and how fiscal policy is affecting them.

The survey results are worth checking out in full, but a few noteworthy takeaways from the most recent assessment are:

  • The median month when corporates believe financial normalcy resumes is now February 2021, a date that had pushed out with each new weekly survey but recently stabilised at a nine-month timeline.
  • Central bank liquidity remains the saving grace for many. Corporates, by a three-to-one ratio, have reported positive positions relative to the amount of liquidity provided by central banks.
  • Cash, however, remains the biggest thorn in the side of corporates right now. In the past week, over 10% more companies have extended their accounts payable timeframes (now totaling 42% of organisations surveyed).

“Cash is, of course, both a business’ lifeblood and its insurance when financial markets become unpredictable,” says Michele Marvin, Global VP at GTreasury. “To weather this current period of AR uncertainty, corporate treasurers must sharpen their visibility into cash assets around the globe like never before. They must also ensure they have command over the cash management levers they’ll need to pull, if and when decisive actions become necessary.”

Debt markets are already shutting down. Companies needing additional cash might find it increasingly hard to come by, especially if tightening banks are unwilling to support businesses displaying signs of stress. For Marvin, these factors only heighten the importance for corporates to have full visibility into their available cash, its locations, and just how swiftly they can access and move cash when and where it’s most sorely needed.

The possibility that disruptions caused by COVID-19 might upend a company’s expected buy-sell activities are high, and certain to alter cash availability predictions. “Given these risks, corporates must anticipate major shocks to both the supply and demand sides of their operations, model their probable impacts on cash availability, and prepare the most effective responses they can muster,” she advises.

Here, Marvin offers six tactical ‘best practices’ for corporates to strengthen their cash visibility and management options for the challenges ahead:

Build models for multiple-business stress test scenarios to understand your liquidity needs under each.

“You want your models to confirm that your organisation has the on-demand facilities and liquid assets to maintain business continuity and keep a safe buffer under even the worst-case scenarios,” she says. “The results of these stress tests will better equip you to make more informed decisions as to whether you need to find extra facilities or maintain more cash on hand.”

Calculate your complete cash position early each day.

Corporates should have full visibility into where nearly all of the company’s cash is at any moment. Every disparate location where the company does business across the globe adds complexity to the challenge of maintaining cash visibility. “That hurdle has only been exacerbated by the current market upheaval,” comments Marvin. At the same time, the COVID-19 environment makes accurate cash tracking all the more crucial: corporates must know where available cash is located in order to move it to where it can help.

“When it comes to moving cash globally, market cut-off times and time zones can limit your options just when cash is needed the most. Instilling processes such as intra-day updates to increase cash visibility can make all the difference in preserving agility for how to marshal cash assets.”

Recheck your cash forecast numbers and assumptions for accuracy.

“Now is the time to increase the frequency of your cash forecasts, recheck assumptions, and identify sensitivities,” she advises. Indeed, these efforts may benefit from greater visibility into AP/AR ledgers, and increased communication with procurement and sales teams to speed up the flow of essential information.

Account for currency exchange fluctuations.

If your company makes or receives payments in foreign currencies, tune your cash forecasts to prepare for shifts in FX rates and build a keen awareness of those cash sources and expenditures.

Plan contingencies with banks or funding providers early if your cash position or debt covenants may be at risk.

“If your cash forecasts and stress tests point to dangerous scenarios, talk to your banks early while your negotiating position is strong,” Marvin counsels. “You want an optimal buffer overdraft you can call upon when needed – but prepared far before you actually need it.”

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