In recent years, financial therapy is gaining popularity, helping people resolve emotional questions related to monetary concerns. Specialists offering citizens financial consultations are increasingly considering such emotional aspects related to finance management, and this fairly new approach is becoming especially relevant in the current period of uncertainty. The elements of emotion and familiarity with them are becoming especially important also to small and medium sized enterprise owners and heads, who are striving to get operations and finances back on track.
One of the largest and most challenging risks for businesses is customers belatedly paying for purchased goods or services. Even before the coronavirus pandemic and lockdown halting the economy, almost every second small and medium-sized enterprise in Lithuania faced such situations. Now, this problem has only grown more acute – when speaking to business owners and leaders, we notice how concerned they are over their companies’ financial health.
That said, the aforementioned risk is not the only one. Serious challenges emerge before companies at the moment also due to reduced sales and profitability as a result of decreased demand. The situation could be worsened even further by credit insurers revoking limits. This means that companies no longer receive postponements from their suppliers or can no longer ensure purchase risks and in certain cases, receive factoring services. Payment postponements for suppliers and the spread of negative information potentially related to it could have potential negative impacts on company credit ratings.
In the longer term, there remains uncertainty on a potential second wave of COVID-19 infections and a negative – L, not V-shaped – economic recovery scenario. If were to occur, companies will have fewer resources to maintain operations or uphold various commitments.
To resolve these challenges, it is crucial to seek effective process planning, securing operational funds and reacquainting oneself with clients, such as finding out what challenges they are dealing with, and how they are planning their operations and payments. In other words, managing the situation demands both serious and also the so-called soft measures, and sometimes the situation can be facilitated to a significant degree by a single phone call.
Key advice
Careful planning. Companies seeking to secure stable financial flows must currently be constantly planning and monitoring processes. Firstly, they must plan out production scales and sales, calculate how much the necessary raw materials will cost, how much funding will be frozen in production processes, how much production will have to be warehoused, and what payment postponements will be offered to clients. It is also possible to contribute to financial flow stability through such measures as partial payments indicated in the long term or large contracts. A challenge-response plan can also span cost optimization and relinquishing non-profitable activities.
Ensuring working capital. For maintaining balance in working capital, it is also important to perform calculations, which help decide on the most favorable means of financing it. This could be an agreement with suppliers overpayment postponement or extension or a bank loan, or factoring services, which means demanding the right to hand delayed payments to factoring companies. This way, businesses can receive up to 90 percent of their frozen funds without committing further property before the payment deadline.
Review opportunities offered by the state. Currently, businesses handling working capital challenges could consider reviewing opportunities offered by the state. Among them are guarantees offered by various financial organizations and INVEGA for the financing of payments or loans. Such measures expand the spectrum of solutions available to companies during this difficult period.
Resolving payment procedures. Different companies can have varying procedures for payment for goods or services. Some might perform payments on the same day of the week or month, while others as soon as they receive the charges. There can also be differences in the format of documents needed by companies, thus it is better to make arrangements ahead of time as to where and how the payment date, goods amount, and responsible staff member’s confirmation should be entered.
Know your client. In the local market, the task of knowing your client can often be resolved with ease. It becomes a little more difficult if the company’s operational geography is far wider. In such a case, to ensure that the client’s financial circumstances are stable, this can be done by making use of credit evaluation bureaus operating in specific countries and by reviewing available information with their experts. Also, it might be beneficial to review the business situation reviews they release, indicated payment, and belated dates.
Consult experts. Businesses seeking to adequately plan working capital management processes and manage risks often trust these tasks to specially formed teams. This could be specialists working within the company, but also external partners. Working with either, it is usually essential to discuss the existing situation openly, naming both optimistic and concerning aspects. With professionals concentrating on the task this way, they will be able to perform it in a quality and expedient manner, choose the most effective combination of necessary measures.
Look into loan postponement opportunities. Many finance and credit establishments operating in the country, seeking to aid their clients during this difficult period, have signed moratoriums, which grant them the opportunity to postpone loan payments. It is important to openly communicate with financial intermediaries and credit insurers, as understanding the challenges a company is facing, they will be able to seek solutions together and will not make rushed decisions due to a lack of information.
Eliminate minor misunderstandings. The reasons for belated payments, even under difficult economic circumstances, are not always necessarily difficult. Sometimes it could be minor mistakes or misunderstandings such as lost documents in the customer’s warehouse or accounting, incorrectly filled in bills, small mismatches in the presentation of a purchase. Such situations do not pose difficulties in the long term but can take time to resolve. Thus, upon presenting a purchase or a bill, it could be beneficial to make a friendly call to the client, inquiring whether the goods received matched expectations, or whether the bills reached the accounting department.