CFO Series - Managing Liquidity through COVID-19

In this webinar, we discuss the importance of CFOs in minimizing the impact of the global pandemic on liquidity.

What is the Impact of COVID on liquidity?

“The key guiding principle during such times is transparently communicating the situation, however unpleasant, with employees, investors, customers, and partners”

- Amit Gala, Chief Financial Officer | Mswipe Technologies

The role of CFOs has become critical as businesses struggle to maintain cash and liquidity amidst halted business operations. Reasons include:

• Delay in invoice payments by customers
• Reduction in new sales
• Increase in cost of short term financing

With rigorous engagement with clients, identifying innovative ways to collect payments and looking at other ways to financing operations, upgrading business plans, optimizing budgets.

Challenges:

• Low to nil revenues, especially for non-essential businesses.
• Ensuring the welfare of all stakeholders, especially employees
• Halting of pipeline projects and renegotiating contracts
• Working capital management by focusing on existing inventory
• Exploring opportunities in the equity market for financing
• Understanding how to ensure payment to suppliers and vendors
• Evaluating fixed and variable cost structures
• Ensuring all teams are engaged and productive
• Creating an action plan for a situation where the pandemic persists longer

Opportunities:

• Lesser carbon footprint, more productivity, and savings due to work from home would impact lifestyle mean more consumption in the long run
• Digital led sectors, healthcare and FMCG will grow
• Course correction on governance and ethics within the organization
• Identifying new business opportunities via pivoting
• Identifying output-driven activities and upskilling existing employees
• Better understanding and relooking of assets and liabilities

How to manage Inventory for liquidity?

“It is important to keep in mind that the need for products will exist, but the entire structure for what the customers are willing to pay for and how much may undergo changes leading to changes in product portfolio across sectors”

- Neeraj Basur, Chief Financial Officer | Blue Star

Inventory management is crucial to ensure liquidity in tough times due to low sales. Some suggestions by panelists include:

• Determining the level of stock and what will be done to liquidate it due to existing low sales
• For running orders, either decide if orders will be canceled or delays in order processing depending on your relationship with the suppliers
• Understanding impact on customer liquidity and product preferences to optimize product and service portfolio

How to fundraise for liquidity?

Fundraising can help businesses stay afloat during COVID times. You can approach fundraising via:

• Plan for equity funding options - either pure equity, hybrid, or debt instruments
• Reaccess your funding capabilities due to limited funding options for short term
• Quantify and raise solvency capital for unregulated businesses

How to reduce operation expenditures?

Businesses can approach cost reductions in operations via:

• Halting of long term assets that aren’t profitable but strategic for growth
• Decisive conversations for reducing asset liabilities
• Reduce supply chain cycle to avoid working capital commitment
• Optimizing employee costs via layoffs or incentive-based compensation

How to manage receivables?

Ensuring receivables are executed can increase your liquidity. Businesses can follow the following approach:

• Identifying customers who can pay on a priority basis and complete transactions
• Support suppliers or businesses with unorganized working capital with cash discounts or giving credit
• Set up channel or customer financing for the ecosystem
• Recess credit-worthiness and commercials for credit period and extension of partners

What are the government schemes available for liquidity?

“Transparency in terms of implementation of schemes would help keep the economic engine alive on the banking side”

- Kaleeswaran A., Chief Financial Officer | Eicher Motors

The Government has provided:

• Short term relief for GST and other taxations
• Banking support for credit and interests
• Has adopted a reformist agenda by opening up FDI