
Managing total liquidity in response to the COVID-19 crisis
May 1, 2020
May 1, 2020
While national governments respond to the COVID-19 crisis with public health initiatives and economic stimuli, businesses are still charting the right course of action1. They need to protect their employees and be relevant to their customers, but they also need to safeguard the future of the organization. Actions taken now by the chief financial officer and the finance function can have an immediate impact on the survival of the company, how quickly it rebounds from the global downturn, and its financial health and sustainability going forward.
An analysis of the Altman Z-score, conducted by Accenture, found that of the S&P 500 companies, 210 companies were in the distress zone in late March 2020. The distress zone suggests a considerable risk for many companies of going into bankruptcy in the near future.
As CFOs safeguard total enterprise liquidity in this time of crisis, they should ensure they have two capabilities supporting the core of finance and liquidity management activities:
In the immediate term, CFOs will undoubtedly secure and strengthen existing financing sources and look to create breathing room by cutting non-essential spending. At the same time, CFOs should leverage the liquidity control tower to improve cash flow.
With these elements in place, the CFO and finance team can then undertake initiatives.
Once immediate steps to improve cash flow are in process, the liquidity control tower can focus on building scenarios with dynamic supply and demand planning options. These scenarios leverage agile frameworks and diverse data sources, including macroeconomic factors reflecting the impact of COVID-19.
In the early phases of recovery, the liquidity control tower continues to help organizations increase their agility and respond to rapidly changing conditions. CFOs should invest in the technologies and skills needed to accelerate decision making to grow the business.
A comprehensive liquidity control tower approach – using data, analytics and innovative technologies to obtain a clear picture, make the right decisions, and develop a plan for recovery and future growth – offers CFOs a way to deal with current volatility while building an enterprise that is fit for a post-crisis world.