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Managing cash flow in this crisis

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FINEX Folio -- By Flor G. Tarriela

FINEX Folio

John Clements CEO Carol Dominguez invited me to join Professor Marc Bertoneche of Harvard Business School in the John Clements Leadership series on the topic Managing Cash Flow During the COVID-19 Crisis. Marc reminded that cash is king (or queen), and more so today that it’s even like god (with small g)! He said there is a need to reward the cash culture in any business today — to shift the focus from profit and loss/balance sheet to cash flow. It’s very important to stabilize and keep essential operations going. Liquidity is of immediate concern. On the cash to cash conversion of a business cycle, these are his suggestions:

* Inventory management — Find the right balance to limit inventory to the basic minimum but without disrupting production and affecting customer satisfaction.

* Receivables management — It’s very critical to collect in a timely manner. Bill fast and bill correctly to avoid any delays in collections. Good quality control is critical to avoid delays.

* Payables management — Try to extend/delay payables as long as possible, but as Marc cautioned, be sure to do it in “an intelligent way,” meaning in agreement with suppliers. Otherwise, you may not have supplies for your production. Take time to review and renegotiate payment terms and suppliers credits. It is also important to prioritize payments as to which supplies are critical to your operations.

On a positive note, he said companies may actually emerge even stronger if they take advantage of the good opportunities coming out of this crisis.

Cash culture should be continued and cultivated even after the crisis. This means companies should plan better, making sure cash is always used wisely.

Companies need to accelerate and speed up digital connectivity and e-commerce. With the lockdown/enhanced community quarantine (ECQ), business models have already changed. Practically every business (even families) now do virtual meetings and it works well! Digitization, e-commerce, online ordering and delivery and payment systems are the new normal.

Firms must also recruit best talents. With travel and tourism industries severely affected and a number of skill-trained OFWs returning, there is excellent opportunity to hire good talent. Companies should take advantage of this valuable talent now available especially in finance and customer service.

Marc suggests that companies:

* Anticipate. Be forward looking. What new ways/products can generate revenues? Do more strategic scenarios. This COVID-19 is the blackest “black swan” I have ever experienced.

* Communicate. Communicate with your bankers, shareholders, suppliers and especially your staff to continue to motivate them in this difficult situation, as well as to avoid destabilization.

* Discipline. Have discipline and always move towards cost efficiency.

* Prioritize. You can’t do everything at the same time so you need to prioritize.

* Empathy. We need to support our people in these difficult times.

The COVID-19 health crisis has severely affected the economy. The pre-COVID 2020 GDP growth forecast of at least 6.5% is now down to -2.5%, with first-quarter GDP showing -0.2%. Fortunately, the Philippines has strong fundamentals to weather this passing storm and has the four-pillar socioeconomic strategy. There is also the Philippine Economic Stimulus ACT (PESA). SEC Commissioner EF Amatong reported the highlights of the PESA to provide government support in last Wednesday’s meeting of the Capital Markets Council. Support has been given to banks and financial institutions through regulatory reliefs, cuts in reserve requirement as well as revival of the SPV Law. For small and medium enterprises and corporates, trainings, bridge loans, SB Corp. special programs specifically for SMEs, and support for tourism, exports and transport industries as well as Philippine Guarantee Corp. and National Development Co. assistance. For households, through the Bayanihan Law, some were given wage subsidies and massive testing. For the government, flagship projects and an enhanced “Build, Build, Build” program will help the economy recover. PESA is currently pending in Congress and we hope it will be passed soon.

With this COVID-19 experience, let’s ensure we conserve cash and use it wisely. Continue social distancing and keep safe! This will pass. God is in control!

 

Flor Gozon Tarriela is chairman of the Philippine National Bank. She is a former undersecretary of Finance and the first Filipina vice -president of Citibank N.A. She is a Go Negosyo 2018 Woman Intrapreneur Awardee. She is a trustee of FINEX Foundation and FINEX Academy and an Institute of Corporate Directors fellow. Contact her at

ftarriela@yahoo.com





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