Working Capital Management In A Post-Covid World

Is your company struggling to maintain its cash flow in this period of economic uncertainty? Then, you must be vigilant about your working capital and properly manage it so that your day-to-day transactions run smoothly and liquidity is optimum.

What is meant by–Working Capital and its Management?

Working Capital, in its basic sense, is the difference between the company’s Current Assets (which include cash in hand, expected payments, raw materials in stock, and finished products) and its Current Liabilities(debts and account payables). It denotes the liquidity scenario of the company to manage its day-to-day expenses and describes the company's efficiency and financial health.

Working Capital Management is the dedicated task of managing working capital to ensure that all the company's day-to-day transactions run smoothly.

How has Working Capital been affected in the post-COVID world?

The pandemic has adversely affected the financial transactions of the companies; the supply chain system has been disrupted, and the Client is delaying the payments. In these uncertain circumstances, companies are trying to slash the pay of employees, delay the payment of their supplies, and cut down variable expenses. All these factors pose a threat to working capital management and create room for companies to look for capital financing options.

As a thoughtful businessperson, you must be thinking about the measures you need to take to manage your working capital in these financially stressed times. Read ahead to learn about all the measures you need to take.

Working Capital Management strategies will be followed for smooth business transactions post-COVID.

• Inventory Overhaul: In the post-COVID phase, consumer demand has been variable, and supply and logistic services are less efficient, which means all these factors call for proper inventory management. An appropriate business strategy in these uncertain times would be to maintain the balance between the just-in-time and just-in-case approaches for inventory management so that you do not spend more on idle inventory, but at the same time, you should maintain sufficient stock to evade potential losses. Maintaining high inventory involves additional warehousing, insurance, and transportation costs, which eat up the working capital, so your company should resort to judicious and real-time demand forecasting strategies based on updated statistics.
• Business Process Restructuring: In the post-COVID world, the delay in supply chain functions, variable government regulations, and the liquidity requirements of all organizations have all resulted in the delay in client payments. So, you need to expedite your pending payments to maintain optimum working capital and manage your outflow. In this digital age, companies are now resorting to electronic invoicing systems to help streamline payments and keep a digital track of receivables. Similar processes should be incorporated into various functions to properly manage the cash flow.
• Deploy Robust Forecasting Framework: Since market forces are dynamic after COVID-19, you need a robust forecasting system to efficiently predict unplanned cash requirements and other variable short-term and long-term capital financing requirements. If the forecasting system is realistic, you can accurately predict your receivables and working capital requirements. Capital management should be optimal, neither too low (which affects the company’s operations) nor too high( which reduces the chances of earning returns on unused funds).
• Keep doors open for Additional credit sources like capital financing and working capital loans: Businesses need to keep track of the market scenario, and if the situation arises, doors should be kept open for additional credit sources. Sufficient cash flow should be maintained at any instant, so vital functions are not hampered. Based on the requirement, you can choose from various capital financing options, such as a working capital loan or capital loan.
• Extending a helping hand to your business drivers: The levels of uncertainty are distributed among the businesses based on their financial capabilities, which causes small businesses to be more affected by the changing market conditions. So, it’s the moral obligation of strong businesses to support their Supply chain partners by facilitating timely payments and providing continuous supply orders. If these small companies are in a cash crunch, they should also take the support of capital financing services.

Looking Ahead

Challenging situations not only pose dangers, but they also give companies a chance to showcase their strength and come out stronger with flying colours. This post-COVID situation also provides them with an opportunity to think outside the box and to develop new dynamic business models and more efficient supply chain functions.