During the many crisis management meetings held in companies throughout the COVID-19 pandemic, phrases like “we should have,” “why didn’t we,” and similar hindsight diagnoses frequently come up. Yet crises, by definition, are unpredictable. Once they have emerged, there will always be room to write lengthy articles explaining how they could have been avoided.
This article focuses instead on what can be done during a crisis to improve companies’ financial position through cash management.
The speed of operational changes
Often overlooked in favor of reactivity and the swift execution of tasks, the reorganization of operational processes is nevertheless fundamental when facing a crisis situation such as COVID-19. This involves implementing IT solutions that are often already in place, thanks to the work of Information Systems Management departments.
An organizational framework must be deployed to allow treasury department staff to continue accessing cash management IT tools in a secure environment.
Protection against financial crime
The reorganization of business activity through the widespread use of remote working in the context of COVID-19 naturally raises the issue of payment security and vigilance. These must be heightened during periods of crisis, when malicious activity tends to multiply. Consider the example of the ” fake president fraud”, which quickly morphed into “COVID-19 fraud” and primarily targeted companies in the medical sector, already generating millions of euros in losses.
Indeed, fraudulent actors take advantage of the urgency of the situation and the pressure it places on operators to implement fraudulent schemes.
Even as the working environment changes, treasury teams must pay particular attention to the risk of financial fraud (cyberattacks, identity theft, phishing, forgery, etc.). Vigilance must be further strengthened when payments are processed manually and the digitalization of payments has not been fully developed within the company.
Access to liquidity
A company holding significant amounts of cash and cash equivalents (classified as such) in the form of term deposits or interest-bearing accounts, for example, will be able to mobilize that liquidity within a reasonable timeframe. On the other hand, a company holding a large volume of investment assets must quickly review the exit conditions (taking into account any early redemption penalties or refund timelines) in order to accurately estimate the amounts that can be mobilized and the timeframes for obtaining liquidity. Companies without a substantial liquidity reserve may, in some cases, rapidly draw down available credit lines in order to build up a treasury reserve.
Crises, including COVID-19, quickly result in a scarcity of short-term available funds. This scarcity, and the inability of some companies to cope with it, is often a significant factor that can lead to an extremely difficult financial situation. Companies must also anticipate their capacity to draw on credit facilities with longer maturities.
Finally, where available, companies should make maximum use of emergency financing solutions that may be put in place at the national level. In the context of COVID-19, companies have been able to access State-Guaranteed Loans. For example, Fnac Darty announced the signing of a credit agreement for €500 million, 70% guaranteed by the French State, with a group of French banks. This borrowing was intended to secure the group’s liquidity and prepare for the resumption of its operations.
A complete overhaul of financial forecasts
This overhaul may require a radical change in the forecasting model, particularly in cases of structural transformation of the market in which the company operates. Empirically, companies have tended to underestimate the impact of crises and economic shifts by focusing solely on quantitative estimates such as declines in production, demand, or costs.
In doing so, they often neglect the impact of harder-to-quantify factors such as shifts in consumer behavior, regulatory changes, payment delays, extended delivery lead times, or the bankruptcy of key suppliers or partners.
In the context of COVID-19, a sound forecasting model across the various phases of crisis management (lockdown, gradual reopening, recovery) can be a significant asset in a company’s ability to bounce back and remain competitive. While forecasting models are never 100% accurate, the absence of appropriate forecasting models is detrimental in 100% of cases. For optimal use, these forecasts must be updated regularly as the crisis evolves.
In times of crisis, the work of the CFO and treasury team is made heavier by the new organizational framework, the heightened attention required for payment security, the development of an adapted forecasting model, and the dynamic management of liquidity. Support from external experts can save precious time and help treasury and cash management teams navigate the crisis more effectively.
The FINTIS team offers to remain by your side during times of crisis, assisting you in analyzing your available funds and converting less liquid investments into near-immediate cash.
