During these unprecedented times, we internally debated postponing thought leadership content until there was some semblance of normalcy. Ultimately, we decided our ability to share knowledge that can help small & medium size businesses outweighs the need to be sensitive to the newscycle. We expect you are having countless conversations on how to manage risk and be resilient during this disruption. We hope you find our perspectives helpful and supportive of that effort.
Most larger businesses (250 Million in Revenue and Above) take working capital for granted. The day to day focus is more optimizing capital structure than liquidity. A crisis like the one we are facing now forces everyone to pay attention to managing cash flow. Drawing down lines of credit is one way to ensure liquidity. Another is to balance the cash conversion cycle. What do you or your clients have tied up in receivables and/or inventory versus the capital of their suppliers that is held up in payables. Do you or your clients have a clear understanding of the cash conversion cycle? The more visibility they have into the details, the better equipped they will be to adapt quickly within today’s trying environment.
Clear and frequent communication with customers and suppliers will prove helpful with these calls to action. Additionally, the cash conversion cycle is a good indicator of a company’s ability to maintain stability during a stressed and unpredictable economy. Analyzing the cycle will make it easier to determine the best way to boost liquidity, whether it be a short-term fix at a higher cost or a lower cost, long-term solution.
What steps can a company take to stabilize a supply chain that has been massively disrupted by a global pandemic? This is certainly a complex question. Before making any strategic decisions, the single most important step is to keep lines of communication open.
When it comes to supplier relationships, maintaining diversity and promoting stability should be the goal. This dislocation creates an opportunity to evaluate, improve processes and solidify vendor relationships critical to long term success.
The current environment is evolving quickly but we see the underlying strain stretching well into 2020. The greatest sensitivities to shocks and downturns rest in the long tail which is made up of the smallest suppliers in the chain. Providing on demand early payment of invoices is the fastest way to help suppliers. This is where we can help. If your business or clients are looking for options to improve liquidity without negatively impacting suppliers, we have programs to help.
We will continue to provide frequent communication as we assess the impact to supply chains, particularly the small and medium size businesses.