COVID-19 crisis: How to optimise your ability to pay

In view of the fact that the difficulty of providing a reliable forecast in the current situation may appear to be insurmountable even for a short period, many businesses currently concentrate on drafting and implementing short-term control mechanisms in order to quickly ensure and create liquidity. It is to be hoped that the relief programmes adopted by the Federal Government and the states will help to secure loans to bridge liquidity bottlenecks by means of public guarantees. Nevertheless, the relatively low, but still necessary, share of the (main) banks' own funds will probably contribute that the currently extremely high level of uncertainty slows down the decision-making process and that bottlenecks occurring at the very short-term have to be bridged by the company's own funds for the moment. (Read our article "Update: Financial support for businesses"). Self-optimisation of customers, support requirements of suppliers or lacking purchases should also quickly lead to higher financing requirements via higher working capital.

Working capital is a good starting point

In addition to a firm and objective analysis of the cost base, the company's own working capital offers a good starting point for releasing liquidity potential quickly, independently and efficiently. That means: Check your own inventory for unnecessary deadweight or "old treasures", track inventory quantities closely to avoid unnecessary orders or production quantities, coordinate purchasing, planning and sales to a higher degree and ensure a higher crisis awareness in the company. On the supplier side, advance payments and early payments should be critically double-checked in accounts payable management and assessed in relation to the importance of individual suppliers. Apart from issuing invoices in time and as early as permissible, it is almost impossible to anticipate which internal measures can help to bridge liquidity bottlenecks. In view of the COVID-19 crisis, which occurred unexpectedly and through no fault of the parties involved, constructive cooperation based on partnership and with a view to the future is certainly much more relevant here. In our opinion, however, it is important in tactical business management – despite all measures – not to lose sight of emergency plans or interruptions to the business or supply chains.

One thing is certain: the shutdown will result in considerable financial bottlenecks and therefore requires quick action. In addition to the support offered by politicians and banks, a large number of instruments for short-term working capital financing (current account, factoring, reverse factoring, borrowing base loans and others) are imaginable as building blocks to meet the company's structural financing needs. Since access to these external solutions is likely to be difficult in the short term, priority should be given to the use of leeway within the company.

Practice note

We will be glad to support you during these challenges and not only point out short-term quick wins. If in the process of ensuring your liquidity you also need to deal with matters such as crisis management funds, short-time work, tax deferrals or legal questions relating to contractual relationships: We have the right experts to advise you comprehensively and from all perspectives. In the medium term, it is certainly exciting to find out whether the COVID-19 crisis results in a reorganisation of supply chains in terms of more localisation and whether a critical look is made at linear business models.