To Weather COVID-19 Disruption, Hone Cash Visibility and Management

By Michele Marvin, VP, GTreasury

COVID-19 and the resulting market volatility has ushered in a thick fog of uncertainty for corporate treasurers. Weekly surveys of corporates and finance professionals across 600 enterprises (as compiled by the Treasury Coalition) continue to reiterate that cashflow is far and away the number one concern. With barely any room for error right now, smart and efficient cash management actions are all the more consequential. Visibility into the future is limited at best, and corporates must make the most of the information they already control to extend their cash visibility and management capabilities.

Banks are constricting lending. Debt markets have battened down the hatches and are likely to remain that way for the duration of the pandemic. Just how long that could be is still anyone’s guess (per the survey, corporates don’t foresee a return to financial normalcy until at least February 2021). When the reliability of support from financial markets becomes a dangerous unknown, as is true right now, cash on hand is every corporation’s insurance policy for carry through challenging times. Against this fast-changing environment, corporates must cultivate a precise understanding of global cash assets, and prepare decisive responses for accessing and repositioning cash to shore up the business wherever and whenever needs arise.

More specifically, corporate treasurers must anticipate further disruptions to their company’s usual buy-sell activity and operations from both supply and demand perspectives. Cash availability projections will need to be rewritten now and again, until the financial disruption of the COVID-19 era has passed. At the same time, treasurers should have cash-based mitigation tactics notched and ready to let fly if and when circumstances in specific regions or business areas threaten to turn even more dire.

Let’s look at six best practices corporates should adopt to increase cash visibility and prepare a broad arsenal of effective cash management tactics:

Add a complete visualization of your cash position to your morning tasks.

Now more than ever, treasurers need to be able to pinpoint the location of almost all corporate cash around the world at any given time. But maintaining a high level of visibility into cash assets becomes more complicated in relation to the number of countries a business operates in. COVID-19 and the resulting volatility in financial markets adds to the challenge of maintaining up-to-the-minute cash visibility and makes accurate cash reporting even more essential. Knowing the position of worldwide cash reserves is a foundational strategic capability, enabling rapid-response cash maneuvers when requirements from disparate regions or business sectors arise.

Treasurers should be keenly aware of the limitations that time zones and market cut-off times put on their abilities to move cash at will. To maximize cash visibility – and therefore cash agility – implement intra-day updates and similar processes that reduce the practical limitations imposed when certain markets aren’t open for business.

Create stress test models to gauge required liquidity under various scenarios.

Accurate decision-making requires accurate information. To prepare forward-thinking strategies, build stress tests that model even the worst-case scenarios. This exercise will determine whether your company’s cash on hand and on-demand facilities are enough to see you through tougher conditions that might be ahead. Based on your modeling results, you’ll know if an increase in liquid assets or facilities is prudent to build a more comfortable buffer.

Verify the accuracy of cash forecasts by testing all assumptions.

Cash forecasts must become more frequent and (as much as possible) more accurate. To accomplish this, increase AP/AR ledger visibility and the flow of information from sales and procurement teams. You will also want to identify and address any sensitivities that hamper your ability to maintain a strong cash position wherever those issues exist, and build the sensitivities into your models

Take currency exchange rate shifts into account.

When modeling any expenses or revenue sources involving foreign currencies, treasurers must account for exchange rate changes. Make sure this variable is incorporated into any and all COVID-19 cash forecast projections.

Negotiate with banks and funding providers early on.

Cash forecasts and stress test models will let corporates know how bad the worst-case scenarios really are. If risks exist, negotiate now to prepare an optimal buffer overdraft should the worst case become the reality.

Enlist outsourced support for operational tasks.

The challenges of this moment justify an all-hands-on-deck approach. Call on supplemental help from external resources across your company’s finance team or treasury solution vendors to handle your operational needs. Doing so will free treasury resources for an intensive focus on the analysis and decision-making required to safely steer the business through to the end of the financial disruption caused by the COVID-19 pandemic.