3 minute read 3 Apr 2020
COVID-19: Will cash help companies overcome these current challenges?

COVID-19: Will cash help companies overcome these current challenges?

Françoise de Longueville
By Françoise de Longueville

EY Belgium Financial Accounting Advisory Services Executive Director

With my team, we address all treasury matters: Cash & Liquidity Management, Treasury Audit Support, Financial Risk Management and Treasury Technology.

3 minute read 3 Apr 2020
Related topics COVID-19 Financial accounting advisory services
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The current situation teaches us that this changing environment calls for more time and dedication of managing cash and treat it as corporate assets.

The WHO declared COVID-19 a pandemic. COVID-19 has become a black swan event, one that is a human tragedy and impacting governments and businesses alike with unprecedented disruption and risks. It is a crisis that has profound implications for companies globally. From the complete or partial shutdown of factories, to supply chain disruptions, to labor shortages to cash flow stress, companies are feeling the business and financial shock of the COVID-19 outbreak.

The current situation teaches us once more: this changing environment calls for more time and dedication of managing cash and treat it as corporate assets. There are a number of key impact areas and challenges corporate treasurers and CFOs must address to overcome short-term risks and sustain business. When dealing with the unknown oftentimes it is best to plan for the worst and hope for the best.

Effective and efficient liquidity management

Cash and liquidity management should be seen as part of the DNA of an organization and steadily and actively followed up by Senior Management. The past financial and economic crises shows that an effective and efficient liquidity management is one of today's key driver not only in terms of surviving but also for reactivation and even for a true success story. Treasurers and CFOs need to ask themselves how their business’s cash flows might be affected globally by the new coronavirus. They will also need to consider how their banks may be affected, and the implications on topics like liquidity management and funding level of borrowings, covenant management and FX hedging. 

Cash and liquidity management should be seen as part of the DNA of an organization and steadily and actively followed up by Senior Management.
Françoise de Longueville
EY Belgium Financial Accounting Advisory Services Executive Director

These will bring questions whether they can adequately forecast cash under various scenarios to identify potential shortfalls and get the liquidity to where it is needed, especially in highly regulated countries. They will need to identify where the cash and cash equivalent, including the committed credit line facilities, are located and how can the idle and trapped cash be mobilized. Based on that, they will determine what is the short-term liquidity and contingency funding measures there is in place in a limited accessibility to capital markets and funding and increased funding costs.

While it’s too soon to gauge the full impact of the outbreak, it’s clear that there will be plenty of challenges to face in the coming weeks. As always, treasurers who keep well informed about the developing situation, seek advice and approach the challenges proactively, will be best placed to navigate these choppy waters.

Operational impacts

Outside the liquidity forecast, there are other major operational impacts on the daily cash management such as the limited physical interaction between teams and individuals due to the restrictions to access to buildings and infrastructure which can lead to potential increased absences of key staff members and decision makers.

The solution lays on the virtual collaboration tools in place, such as access to Treasury technology (e.g. payment stations, Treasury Management Systems) remotely and activate the business continuity plan and continue to comply with controls (e.g. 4-eye principle, physical signature).

Steps to address the crisis

  • A close monitoring to identify liquidity impact areas and short term funding requirements across the enterprise and perform risk assessments with high-level quantification of sources/uses of funds and their impact on the company’s liquidity to define an action plan including responsibilities and timeline.

  • To manage the short-term crisis management, implementation of crisis measures such as acceleration of receivables and implementation/enhancement of liquidity forecasting. Enhance reporting and monitoring tools (e.g. digital dashboard) and support the communication to the stakeholders. If and when needed, increase the staff capabilities to reinforce support.

  • For longer longer-term measures, these will need to include a reshape of the funding strategy and balance sheet targets, adapt the governance if and where required, update the business continuity plan and adjust ongoing operating model.

How EY can help

Treasury services

With the role of the treasury function evolving, EY can help you to have the right tools in place, and to improve risk management, hedging, and derivatives and commodity trading.

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*This article was developed in collaboration with CFO Magazine.

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Summary

The current situation teaches us once more: This changing environment calls for more time and dedication of managing cash and treat it as corporate assets. There are a number of key impact areas and challenges corporate treasurers and CFOs must address to overcome short-term risks and sustain business. When dealing with the unknown oftentimes it is best to plan for the worst and hope for the best.

About this article

Françoise de Longueville
By Françoise de Longueville

EY Belgium Financial Accounting Advisory Services Executive Director

With my team, we address all treasury matters: Cash & Liquidity Management, Treasury Audit Support, Financial Risk Management and Treasury Technology.

Related topics COVID-19 Financial accounting advisory services
Upvote