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As the UK enters a recession following the unprecedented and unexpected impact of coronavirus, businesses will be focused on protecting ongoing trading and understanding the risks to their operations. For many, managing working capital will be top of the agenda.

While many senior decision makers will have made similar considerations before, even the most experienced often find it useful to revisit or tweak their strategy during a crisis. With challenges ahead, businesses can take simple steps now to improve cash flow and build the capacity to recover from difficulties. 

1.    Start liquidity scenario planning
When times are more uncertain, it pays to be prepared for multiple outcomes. Scenario planning enables businesses to develop responses to different markets ahead of time. In its widest context, this can help to reduce the risks associated with the unknown because you’ve already considered and planned for a range of possible ‘realities’.

From a financial point of view, liquidity scenario planning can help businesses organise their cash projections against different variables and work out how much working capital would be needed in each situation. This overview can be invaluable in fast-moving and changeable situations, enabling you to make dynamic responses that protect cash flow.

2.    Manage supply chain risks
Evaluating your supply chain regularly can ensure you are ready to respond to changes that could disrupt operations and cash flow. Take time to understand the trading risks of key trading partners and ask what impact their changes could have on your business – could they face disruption themselves? Will you have access to the resources and raw materials you require? What will you do if working capital becomes a key purchase constraint?

Even when business is going well, an in-depth and finance-driven approach to supply chains can enable strategies that ensure ongoing efficiency and stability over the longer term. 

3.    Mitigate pressure on accounts receivables
B2B operations can be especially exposed to economic downturns due to their reliance on other businesses in the same position. However, by identifying potential pressure points and acting proportionally ahead of time, you could mitigate the impact challenges have on your overall cash flow.

Take a sales ledger that shows especial exposure to one client as an example. Once you have noticed this, you can consider the strength of that company and how likely it is that they will be able to pay their invoices during a crisis. You may also take steps to diversify your customer pool or take out bad debt protection so that it has less impact if a business you have invoiced ceases trading.

4.    Consider your variable costs
Understanding how cash moves through your organisation is key to the fiscal flexibility needed when there is a decline in economic activity. An informed and consistent knowledge of both payments coming in and those going out is vital.

With a firm grip on operational costs, such as utilities, raw materials and labour, senior managers are able to react to external shifts quickly. Reducing these variable costs can often be a quick way to cut outgoings, allowing for cash flow and income streams to be protected. 

5.    Find funding that helps you
Having funding in place should always help SMEs to thrive, but its worth remembering that the right solution can change over time. Invoice finance solutions often rise in popularity during challenging periods because they give businesses immediate access to the value of their invoices, assisting with cash flow without adding unencumbered debt.

If you’re responding to a crisis, consider what your scenario plans and experience reveal about your cash requirements and explore possibilities with your accountant, an existing lender or even a new one. With the right support, you can ensure your cash flow remains viable.

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Close Brothers Invoice Finance
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165 Dyke Road, Hove
East Sussex, BN3 1UY

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