Managing business cash flow during unprecedented times

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 international supply chains. These range from halting manufacturing processes to a shortage of transport and retail staff to deliver and restock goods.

Furthermore, experts say there will not be a swift rebound, with supply chain delays expected long into 2023.

So, how can SMEs manage their cash flow to build profit and avoid as many supply chain problems as possible in the future?

Overcoming supply chain disruption

The key to surviving disruption is to be ready for anything. While nobody could have predicted the scale and impact of the Covid-19 pandemic, certain political, economic and geographical factors will always have the potential to disrupt international trade. For example, if sanctions are imposed on a country they can disrupt trade for many of its regular trading partners.

So, a company must have a strong backup plan to combat disruption. The plan could include the following directives:

• Assess supply chain partner performance.
• Identify potential replacements.
• Review contracts to understand legal obligations in exceptional circumstances.
• Find alternative ways to access working capital in emergencies.
• Improve processes (e.g. move operations online) where possible.
  

Flexible finance

Budgeting and forecasting are helpful for setting targets and understanding a company's financial situation in a crisis. 

• Budgeting focuses on the revenue a company expects to receive by a certain date. 
• Forecasting predicts revenue based on historical data, helping companies to identify the amount of capital they need for growth and to cover shortfalls.

Companies might benefit from zero-based budgeting, which involves starting each accounting period from a 'zero base'. Business expenses are reassessed and reapproved for each period, rather than the budget being based simply on past spending. This creates an effective process for analysing costs and deciding where funds can be spent most effectively. It can eliminate waste, highlight areas of greatest value and focus managers on maximising profitability.

Budgeting and forecasting can establish whether sufficient working capital is available to deal with disruption. If it isn't, companies may boost working capital by:

• Cutting operation cycle times (the time between receiving inventory, shipping goods and collecting payment).
• Asking for upfront payments from Buyers.
• Leasing equipment or services instead of buying, thus spreading costs over time to avoid periods of negative capital.
  

Avoiding bottlenecks

Bottlenecking occurs when Suppliers cannot meet the current demand for products. This can happen at any stage in the supply chain. For example, manufacturers may be facing a shortage of the materials needed to create their products, or logistics providers may be unable to transport them.

The impact of bottlenecks can be much more severe during times of disruption. In some circumstances, demand for goods can increase to higher-than-average levels while production and supply levels can drop.

Companies have the best chance of overcoming bottlenecking by streamlining the supply chain process. This means automating tasks where possible, such as scanning products inside and outside of facilities to free up employees for other tasks.

Managing working capital

A company's ability to manage disruption will be largely dictated by its accounts payable (the money a company owes to its vendors) and accounts receivable (how much money it is owed). The difference between these two figures will determine whether a firm has sufficient cash flow to survive during difficult periods.

Chasing accounts receivable - in other words, collecting invoice payments - is where many immediate cash flow problems can be solved. Suppliers may need to offer deferred payment terms of up to 120 days to their international Buyers even if it risks putting them in a negative cash flow position. 

But Suppliers can reduce this risk by offering early payment discounts and sending invoices at the earliest opportunity. However, neither will guarantee payment from the Buyer.

Therefore, Suppliers often turn to invoice financing services to access the cash that would otherwise be tied up in unpaid invoices. Selling invoices for cash can give Suppliers the liquid capital they need to thrive in periods of disruption.

If you are interested in learning more about the content listed above, Stenn has a dedicated FAQ section where you can find more information about our invoice financing services. We also provide videos which explain the company and the financing process in detail.

About the authors

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

Stenn is the largest and fastest-growing online platform for financing small and medium-sized businesses engaged in international trade. It is based in London, provides financing services in 74 countries and is backed by financial giants like HSBC, Barclays, Natixis and many others.

Stenn provides liquid cash to SMEs within the global financial system. On stenn.com you can apply online for financing and trade credit protection from $10 000 to $10 million (USD). Only two documents are required. No collateral is needed and funds are transferred within 48 hours of approval.

Check the financing limit available on your deal or go straight to Stenn's easy online application form.

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Disclaimer: The above article has been prepared on the basis of Stenn's understanding of the subject. 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.