Improving liquidity

While health restrictions from the COVID-19 pandemic are winding down, the chances of an economic downturn are growing, and many businesses face an uncertain recovery. Firms can navigate this volatility and mitigate risk by focusing on their costs and on maintaining strong liquidity in the months to come.

As the early stages of the pandemic taught many business owners, the ability to be flexible is critical during periods of uncertainty. Here are ways to ensure your company’s liquidity remains strong, regardless of what happens in the economy.

Focus on cash flow

Cash flow is an integral part of liquidity. Although accurate revenue forecasts may be difficult to calculate during periods of volatility, companies should remain focused on their cash forecasts while focusing on ways to reduce costs and exploring alternative revenue streams. Firms also can review and improve hiring processes. Some large companies have implemented layoffs to cut payroll costs, while others see increasing staff as a way to increase revenue. Companies may want to identify the best opportunities for their industries and adjust hiring goals accordingly.

Create better inventory management systems

Supply chain issues are increasing costs for businesses while often hindering growth because of inventory delays.

There are proactive steps that businesses can take to better manage inventory (and as a result, liquidity).

■ Invest in data tools to better analyze demand and aged inventory. Look at options based on industry and volume.

■ Source and approve new suppliers to serve as a backup. Avoid relying on a single supplier for raw materials or production. In case one has a factory shutdown or other issue, it is important to have alternatives lined up and ready to go.

Improve your accounts receivable policies

Protect existing capital by maximizing account receivable (A/R) policies. Centralize and automate A/R processing using software to expedite payments. It could help to expand data collection and analysis beyond days sales outstanding to include past due invoices, unapproved discounts and sales team overrides.

Firms can use that additional data to identify problem areas. Depending on what issues arise, they may need to implement updates like changing the credit approval criteria for customers, shortening invoice net terms, or creating stricter guidelines for their sales team. Companies should also be on alert for clients lengthening their payments.

Build a Relationship with Your Business Bank

Having an existing strong relationship with a bank can help a business stay flexible and act quickly when necessary. Many business owners learned this during the COVID-19 pandemic when the first round of Paycheck Protection Program loans became available. The more information shared with your bank, the better position it will be in to help you.While this type of program may not be available again, it is as an example of how an existing relationship makes it easier to identify and seize time-sensitive opportunities. ●

Tom Partridge is Regional President, Northern Ohio, at Fifth Third Bank, N.A.

Tom Partridge

Regional President, Northern Ohio


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