Businesses across the globe have taken a hit due to COVID-19 Lockdown. A temporary shutdown in India resulting into disruptions in Supply Chain, overstocked supplier inventories, conservative consumer spending, fixed overhead costs and overdue vendor payments is causing a huge strain on the financials and cash-flows of many SMEs in India. A survey by FICCI, of 317 companies found that 73% of businesses have reported a fall in the number of orders. During the survey, 50% of the respondents said that their inventory levels were up at least 15% or more.
How Government is coming up with different reliefs
- RBI recently introduced Long Term Repo Operations worth Rs. 100,000 Crore to help Banks increase Lending at cheaper interest rates.
- Government-run Banks are being encouraged to keep loans worth 60,000 Crore ready.
- FM announced the extension of the last date to file belated ITR and GSTR for all businesses from March 31stto June 30th.
Despite these initiatives, you need to focus on a few more things to maintain the cash flow of your Business during the crisis.
- Keep daily business Financials up to date to understand the best possible action to keep Business afloat. Estimate different scenarios for the best outcome in terms of Financials
- Proactively communicate with your Financersabout current business situation, Sales figures, Collection figures. Deeply engage to understand your obligations and work with them to meet them. A strong credit history is essential for getting future funding lines for your business
- Seek payment extensions from your suppliers. In case of any existing standing instructions with Auto-debit facility; speak to suppliers for an extension.
- Speak to your Customers and collect updates on payments. It is important for a healthy cashflow to get regular repayments, explore pre-payment and part-payment options.
- Closely monitor relief measures announced by Regulator and Government.
- It is important to Identify variable costs followed by the Categorization of essential and non-essential costs with ramping up efforts to cut down non-essential spends. Minimizing Operating expenses can provide some relief on liquidity.
- Managing Inventory Optimally; 70-80% of the sales usually comes from 10% products, in terms of consumption, 80% of the value of inventory would be held in about 20 percent of the items. So, focusing on high churn inventory items may also be a good idea.