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Tips to Manage Business Liquidity During the Pandemic

By Tanuja A Akkannavar

For companies, maintaining liquidity throughout COVID-19 has become simultaneously difficult and crucial. The pandemic has shown significant weaknesses in the mechanisms, analysis techniques, and procedures that businesses use to make financial assessments in times of hardship. Although the pandemic is bound to cause continued instability in the coming years, several countries are starting to transition to a new standard. Although this is a good trend, it will take some time. Companies must accept that a swift economic recovery is not assured and that they may face functional, supply network, and marketing challenges in the coming months.

When you consider the effect of losing a substantial portion of income if a large customer leaves the organization, the value of business liquidity becomes apparent. Bills must also be charged, and if the organization is unable to turn all of its assets into cash promptly, it can become unprofitable. If companies want to do more than just survive, they must understand the pandemic's broader implications. Companies that support practices such as enhancing liquidity that both reduces acute risks and builds long-term possibilities will likely be well placed to thrive not only in the COVID-19 age – but also in the future. Following are some of the important tips on how to manage business liquidity in this ongoing pandemic scenario.

1. Cash Flow –
Businesses have had to deal with volatile capital markets and confusion regarding their current and future sales and cash flow since the pandemic started. With concerns about a possible recession increasing, many companies have taken measures to conserve cash, such as laying off or furloughing workers and shutting down production while investigating potential lines of credit and other ways to retain liquidity.

2. Improving Liquidity Management –
One of the most serious risks that a company can face is running out of cash. This has always been the case, but COVID-19 has shown how thin the line between success and failure can be for businesses. That is why liquidity management is so important. It is much more relevant than merely balancing expenditures and profits on a profit and loss statement. To do it right, businesses must devote significant attention to balance-sheet management, including strategies for better working capital management, long-term assets, advancement and other business development investment opportunities, and financial performance.

3. Right Planning –
The essence of the pandemic is so different from other global crises that it necessitates a complete change of mindset. As a consequence, the use of records from many other previous situations is generally inadequate for developing strategies for liquidity analysis. Where appropriate transparency is not enforced, expected output could suffer as a result of uncertain economic conditions. Businesses must closely track the situation to reconsider their liquidity planning methodologies.

4. Adjusting Risk Factors –
Risk profiles must be reconsidered to adequately prepare for the short and long term, just as liquidity estimates must be updated as a consequence of the pandemic's effect. Regarding the risk factors under consideration, the present situation and its related impact must be checked and integrated into revised risk profiles. While risk estimates made over the past few years may have provided for an imminent economic crisis, they most likely did not account for the possibility that workers would be unable to be onsite for an extended duration, or that overall consumption may reduce.
To address this, businesses should first recognize the external factors associated with the COVID-19 crisis, such as remote job requirements and regulatory controls, and their relationship to individual liquidity balances.

5. Premium Financing –
Capital preservation and strategic deployment are essential to a company's success at any time, regardless of market conditions, but it is especially critical now. Premium finance will assist companies in retaining working capital that would otherwise be used to pay commercial insurance premiums. In most insurance transactions, the buyer receives a single upfront premium charge or a portion of the premium up front in exchange for coverage for the following year. Large upfront payment may prevent a company from fulfilling other important and cash-intensive commitments, such as payroll and supply chain costs, at the start of a policy or in the future.

If the pandemic's financial and economic consequences continue to place a strain on companies, financial and risk practitioners should consider their options for dealing with cash flow issues. They can also consult with their advisors on these and other insurance and risk management techniques that can help them maintain liquidity as the crisis continues.

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