Vol 6 (2009) - Issue 1

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Cash Excellence: The Key to Corporate Survival in 2009

It is now considered conventional wisdom that the present credit crisis is a direct consequence of exposures created during the years of ‘cheap & easy credit’ that drove the consumer boom and highly-leveraged corporate financing deals.

With most sectors seeing demand ‘fall off a cliff ’ in the second half of 2008 (often after a strong first half year) and with credit markets all but closed, many corporates are now having to become extremely frugal, cutting costs and managing cash tighter than ever.

Now, as everyone knows, businesses do not fail because they are not profitable but rather because they run out of cash. And for many, getting excellent at managing cash is going to be critical to their survival in 2009.

Cash management: Getting confidence and visibility of future cash-flows

To survive in this new funding desert, corporates need firstly clear visibility of where and when their cash is coming from and going to. For many corporates, their visibility of cash is limited to a broad, quarterly outlook based on general movements of balance sheet items. At this level, things can look deceptively calm.

Look below the quarterly horizons down to weekly movements at a payments-and-receipts basis, and smooth cash lines can suddenly become jagged peaks and troughs of big swings of inward and outward movements of cash, as major supplier invoices fall mature, end-of-month collection windows begin to slip and quarterly VAT payments need to be made.