Cash management in times of crisis : the best practices

Cash management is a critical issue for companies, especially in times of crisis. As France continues its reopening, the country expects to see an increase in the number of bankruptcies. COVID-19 is therefore likely to have far-reaching economic and financial repercussions. Small businesses are more likely to be affected due to their weaker financial robustness. This article aims to provide these small businesses with some insights to mitigate the damage suffered and increase their odds of survival.

1. Apply for state aid

This may seem obvious, but it is essential to put the odds on your side to avoid a liquidity crisis. The French government has understood that the protection of SMEs is a top priority. Note that 99.9% of companies in France are SMEs, and that France is the European champion in terms of business creation. We remind you below some of the general measures taken by the French government :

  • Postponement of payment periods for employee contributions and tax deadlines without justifications or penalties
  • Direct tax rebate planned for the companies suffering the most (in particular profit tax and territorial economic contribution)
  • Deferral of payment of rents and invoices (electricity, gas, water)
  • Payment of an aid of 1,500 euros and an additional aid from 2,000 euros to 5,000 euros, subject to conditions (French Solidarity Fund)
  • State guaranteed loans
  • Possibility of negotiating with banks a rescheduling of bank credits
  • State support in dealing with conflicts with customers / suppliers
  • Simplification and strengthening of the French partial unemployment scheme

In addition to these general measures, the government has implemented specific measures to help the most affected sectors :

  • Tourism and culture sector
    • Possibility of resorting to partial unemployment maintained after May 11 2020
    • Possibility to resort to the French solidarity fund beyond May 2020
    • Exemption from social contributions during closure
    • Cancellation of rents and occupancy fees due to national owners during the closure
  • Building sector
    • Cancellation of late penalties
    • Recognition of COVID-19 as a case of force majeure for public contracts
    • Publication by the OPPBTP of a recommendation guide on the terms and conditions for resuming construction projects

Consequently, if you have not already applied for these French aids and subsidies, do not hesitate to do so !

2. Secure your bank loans

Cash management also requires good relations with the banks. A first lever to activate is to secure your credit lines : loan guaranteed by the French government (PGE), leasing, overdraft authorization. To obtain a PGE, several conditions apply :

  1. Deadline set for 12/31/2020
  2. PGE of up to 25% of sales (or 2 years of payroll)
  3. No personal deposit
  4. Creation of a clear and concise file : demonstrate the sensitivity of your income and expenses to the crisis, make conservative assumptions

However, pay attention to the cost of bank overdrafts, which could be prohibitive and partially offset the expected benefits.

3. Optimize your cash collections

Businesses can be forgiving with debtors in a booming economy, low interest rates and abundant cash. However, in times of crisis, cash management becomes critical. If it is possible for you to defer payments to suppliers, your own customers can also do the same. Consequently, it is important to be careful regarding the collection of receivables. Below are some recommendations to help you further optimize your cash collections :

  • Analyze each customer’s payment history and identify those who appear to have changed their payment practices and deadlines
  • Determine the level of risk for each client and prioritize the clients likely to default
  • Schedule advanced payments for at-risk customers
  • Favor payments by direct debits, or even ask for deposits
  • Quickly bill and automate billing when possible
  • Follow up and get back in touch with your clients : in the event of a dispute, call on a mediator, or even a bailiff

4. Track your cash flow and performance

The last important thing to bear in mind for the entrepreneur is to regularly monitor his cash flow and the performance of his company. It is recommended to have a month-by-month vision for the next 6 months. This vision will allow the business manager to make sound decisions and limit the risk of a bankruptcy. Decisions are to be made taking into account the impact on expenses, income and level of cash. In our opinion, the criteria for a good monitoring tool are as follows :

  • Tool that allows you to quickly get the relevant information (real-time reporting)
  • Tool to present clear and concise information
  • If the need for a solution arises, favor interconnected SaaS solutions

For example, based on your reports from Excel and / or on your accounting information systems, you can set up a cash management dashboard in Power BI. Do not hesitate to ask us if you want to set up this type of monitoring !