Managing cash flow in times of disruption

July 6, 2022

The impact of COVID-19 on global supply chains continues to be felt in the post-pandemic world.

The pandemic and its associated restrictions have affected every aspect of global supply chains – from halting manufacturing processes to a shortage of transport and retail staff to deliver and restock  goods.

And, according to experts, there will not be a swift rebound, with supply chain delays expected long into 2023.

So, how can SMEs manage their cash flow in order to navigate disruption and succeed during future uncertainty?


Fail to prepare, prepare to fail

The key to surviving disruption is to be ready for anything. While no one could have predicted the scale of disruption associated with the COVID-19 pandemic, there will always be political, economic and geographical factors disrupting international trade.

And while businesses with restricted cash flow are most at risk when it comes to disruption, no firm is immune from the impact of severe supply chain delays.

So, it’s critical that a business has a comprehensive contingency plan in place to navigate delays, bottlenecks or unfulfilled projects. And that plan should be a key part of wider disaster recovery efforts.

The plan may include regularly reviewing supply chain partner performance and identifying potential successors, reviewing contracts to understand legal obligations in exceptional circumstances, and even identifying alternative methods of freeing up cash flow if emergencies arise – such as working with invoice finance providers.

Businesses should also review the technology they use to share data among agents in the supply chain, so they can minimise disruption at the earliest opportunity.


Flexible finance

Budgeting and forecasting are not only useful for setting financial targets but can also be effective and reliable methods for understanding a business’ financial situation in a crisis. They allow decision-makers to act swiftly to limit losses.

Budgeting focuses on the expected revenue businesses aim to achieve by a certain date, while forecasting estimates revenue based on historical data – helping businesses to identify the capital needed for growth and those areas that may be prone to cash shortfall.

Businesses are advised to adopt zero-based budgeting techniques, under which their budgets start from scratch each year. This requires stakeholders to justify every expenditure and can highlight non-essential outgoings, as well as allowing businesses to prioritise costs and services as part of a contingency plan in different modeled scenarios.

From this starting point, businesses should then regularly review their finances to make sure they always have sufficient working capital. And if they ever identify this capital as being at risk, they will know the immediate measures needed to improve the situation.

These measures may include cutting operation cycle times (the time between receiving inventory, shipping goods and receiving payment) or asking for customer payments up-front. Similarly, leasing equipment or services – instead of buying outright – helps to spread large costs over time to avoid periods of negative capital.


Avoid bottlenecks

Bottlenecking occurs when demand is too great for suppliers to handle. This can happen at any stage in the supply chain, for example, manufacturers may lack the capacity to meet demand for the product or logistics providers may be unable to transport goods.

While bottlenecking can occur at any time, the impact can be much greater during times of disruption – such as the recent pandemic.

In some circumstances, demand for goods can increase above traditional seasonal levels at the same time as production and supply drop below seasonal norms.

Therefore, businesses must give themselves the best chance of surviving bottlenecks – however severe – by streamlining the supply chain process. This means adopting technologies to automate tasks where manual bottlenecking often occurs, such as scanning products in and out of warehouses.

This also frees up employees to work on valuable growth tasks instead of time-consuming admin work.


Managing capital

A business’ ability to manage disruption will be largely dictated by its accounts payable and receivable. These will determine whether it has the cash flow needed to stay afloat during slower or less profitable periods.

Taking a proactive approach to chasing accounts receivable is advised. This may include sending invoices at the earliest opportunity and offering early payment discounts.

However, even these incentives can’t guarantee early payment.

So, many businesses benefit from using invoice financing services by selling invoices for cash that would otherwise be tied up in deferred payment terms. Invoice financing providers can transfer funds within 24-48 hours of a successful application, getting businesses back in the green and giving them the liquid capital needed to survive and thrive in periods of disruption.

For more information on invoice financing and to find out how Stenn can support your business, get in touch with us today.


About the Authors

Stenn is a registered member of the ITFA, IFA and WOA. It has financed invoices worth over $8 billion (USD) to date and provides:

  • An online platform for easy applications.
  • Non-recourse factoring (i.e. full protection against non-payment of invoices).
  • Rapid assessments (usually within 15 minutes).
  • Cash advances within 48 hours, with only two documents to sign.
  • Advances of between $10K (USD) to $10M (USD).
  • Fees that begin at 0.65%.
  • Advances on international deals that other companies and banks can’t, or won’t, finance.
  • Services in 74 countries.
  • Reverse factoring (buyers can use Stenn to pay immediately and settle the invoice later with us).

This article is authored by the Stenn research team and is part of our educational series.

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Disclaimer: The above article has been prepared on the basis of Stenn’s understanding of current invoice factoring. It is for information only and doesn’t constitute advice or recommendation. Whilst every care has been taken in preparing this article, we cannot guarantee that inaccuracies will not occur. Stenn International Ltd. will not be held responsible for any loss, damage or inconvenience caused as a result of anything published above. All those applying for credit should seek professional advice when doing so.