‘CFOs should optimise cash reserves to tide over Covid-19 crisis’

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New Delhi– With companies reeling under financial crisis and are near standstill in revenue flow, a report by ‘The CFO Board’ suggests that chief financial officers (CFOs) should focus on optimising cash reserves of their companies to survive the crisis and revive after the pandemic is subsided.

The report noted that broader forces at work in the global economy mean underlying economics of strategies could continue to shift with unprecedented speed and scale. And like in 2008, there are symptoms of a synchronised global recession, it said.

Titled ‘Post Covid-19 Revival: Action points for CFOs’, the report also suggested the creation of a ‘cash war room’.

“The priority then is to optimise cash reserves since the magnitude and duration of the crisis remain unclear. A centralised ‘cash war room’ should be launched as was done by a leading organisation during the 2008 crisis,” it said.

“This will ensure that decisions are fast as sometimes people can get unnerved by the situation. Re-think all assumptions on liquidity including worst case scenarios depending on the potential paths of the virus’ spread,” the report suggested.

It said that companies should seek waiver on debt covenants as early as possible to strengthen the balance sheet. They should examine all financing documents and seek amendments to loan agreements and proactively communicate with the lenders.

It noted that setting up the ‘cash war room’ helps in implementing aggressive curbs on spending throughout the organisation. An initiative called ADAPT (Action for Downturn Alleviation and Profitability in Turbulence) was undertaken by a leading organisation in 2008-09, through which liquidity was tracked in real time across units of the company in all geographies, it said.

It further said that companies may have to self fund their growth for over the next 12-18 months. They should revisit insurance contracts and focus on working capital as a source of liquidity.

“Invest time in banking relationship management. Develop a strategy on money market fund investments. And don’t ignore counter-party risks,” it said.

Among other suggestions, the report advised the companies to review commodity or index linked pricing on contracts and revisit payment terms policy in the light of the new credit environment. Companies should assess the supplier base for criticality and solvency, it said. (IANS)



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