Improving liquidity and working capital

In Strategy and Transactions

The COVID-19 pandemic has caused unprecedented levels of disruption and uncertainty for companies across all sectors and geographies. EY teams are working closely with clients to address their individual challenges, including short-term cashflow, debt covenants, tax impacts and accessing government sponsored funding mechanisms, while recommending measures to remain solvent under various scenarios.

What EY liquidity and working capital team can do for you

Many management teams struggle to sustain good control over short-term cash flows and the working capital that drives them, however the COVID-19 crisis is unique in its combination of challenges making mitigation even more complex.

We have experience supporting the complete spectrum of companies: from organizations experiencing a cash crisis to those looking to protect their business continuity and those looking at how to best engage stakeholders around COVID-19.

EY professionals provide deep knowledge combined with practical support to help clients manage their liquidity challenges during coronavirus, including:

  • Bringing cash under central control and visibility
  • Building a portfolio of cash improvement actions and rigorous dynamic cash forecasting
  • Protecting existing hard and soft credit
  • Managing the liquidity impact of coronavirus disruption between finance and operations
  • Tightening controls around customer exposure and collections
  • Reducing cash outflows through cost reduction and permitted payment delays

We understand that the COVID-19 crisis has posed multiple challenges for organizations everywhere. The global EY network of member firms has facilitated more than US$75 billion of increased cash flow for our clients over the past 10 years. We have experience of building and analyzing cash flow forecasts to either clarify short-term liquidity requirements or help navigate medium- to long-term fund flows.

Key steps in managing working capital

To manage working capital in the current environment, EY teams have identified key steps to focus on implementing now, while also what to plan for in the next and beyond as businesses transition to the new normal:

  • Support critical decisions through better data transparency and modeling
  • Build a rolling daily cash flow forecast (~90 days) for short term liquidity needs/covenant management
  • Take advantage of tax re-filings according to government stimulus packages (e.g., CARES Act) and comparable emergency policies
  • Segment the customer base to identify early payment incentives, credit risks and alternative payments
  • Consider commercial arrangements to accelerate cash flow (e.g. extending supplier terms)
  • Leverage transaction level analytics to help procurement control tower team
  • Evaluate emergency inventory management strategies (e.g. pooling, alternate sources of supply)
  • Focus on 13-week cashflow forecasting models and cash management office framework to drive cash culture
  • Re-evaluate non-trade operational changes needed to reform business practices (workforce, taxes, real estate, etc.)
  • Utilize EY benchmark tools to assess leading-class industry standards for working capital KPIs (e.g., DSO, DPO, DIO, CCC)
  • Establish differentiated vendor terms strategy based on risk categorization
  • Re-stock liquidated inventory units necessary to meet “new normal” customer demands
  • Evaluate enhancements/alternatives to supply chain in order to protect against future pandemics and/or uncommon business disruptions
  • Establish long term metrics that support post COVID-19 entitlement planning and actions
  • Develop or improve 12-month cash flow forecast tools and process
  • Revise collections strategy leveraging analytical tools
  • Improve cross-functional dispute management process to expedite payment delays
  • Re-evaluate supplier risk and strategically revise commercial arrangements, leveraging proprietary databases
  • Revise AP processes in line with new industry standards regarding frequency of payment and trigger of terms
  • Consider e-payment strategies and/or supply chain financing solutions
  • Establish post-COVID-19 production strategies, quantifying inventory coverage and programing automated rebalancing

Contact our liquidity and working capital consultants to support your business

Talk to one of our professionals about how we can support you during COVID-19.

19 March 2020 webcast: COVID-19 and the resilient enterprise: how to lead through uncertainty

Watch replay today