9. July 2021
How to master crises successfully
Monika from Veita
Author and finance expert
"The word crisis in Chinese is made up of two characters. One means danger and the other opportunity." - John F. Kenedy. Challenge and opportunity - this is also shown by the annual European Payment Report published by Intrum Deutschland GmbH in June 2021. According to the report, German companies are once again optimistic about the future after strenuous times. At the same time, however, many recognize how necessary it is to professionalize their routines and processes.
For 50 percent, defaults on customer payments are difficult to cope with, slightly more than the European average. As many as 55 percent say their processes are not strong enough to stabilize cash flows in the face of uncertainty - again, domestic companies are above the European average. The bottom line: there is a lot of catching up to do in modernizing the processes and tools companies use for receivables and payment management.
First of all, it is important to clarify whether your own company is actually in a crisis.
Identify crises early enough
Despite optimism, almost all companies continue to struggle with the consequences of the corona crisis. Before strategies are developed, it should first be clarified whether one's own company is actually in a crisis - and how far it has already progressed.
The best indicators for this are the most important operational KPI. They provide the first indication of imbalances. If the threat can be identified early enough, countermeasures can often be taken. Especially in difficult times, companies should therefore continuously monitor their KPIs and develop options for action. KPIs are important not only for managers, but also for investors and banks.
Work with key figures
Two examples of relevant KPIs: To assess the quality of receivables management, it is best for companies to regularly calculate Days Sales Outstanding (DSO). The Days Sales Outstanding indicate how many days it takes on average for a customer to pay an outstanding receivable.
The value of the DSO should be as close as possible to the regular payment terms (e.g. 30 days). Short payment terms and timely receipts of payments ensure liquidity in the company.
Another KPI is the Overdue Ratio. This figure gives an indication of the payment behavior of customers and can be an early sign of a strained liquidity situation in the company.
The value of the Overdue Ratio should be as low as possible. Unpaid invoices that exceed their due date not only strain nerves, but also a company's bank account.
If these and other KPIs are determined regularly, it is easy to assess whether the receivables management or the liquidity situation of the company is improving or deteriorating.
At the same time, they should prepare a liquidity plan. This makes it possible to analyze and plan how cash and cash equivalents will develop, often over a period of up to six months or longer. It includes not only incoming and outgoing payments, but also a sales and earnings forecast and a balance sheet plan. Further planning, management and control can be built on this basis. It is particularly informative to calculate various risk scenarios.
If you suddenly find yourself in a predicament, the first thing you should do is secure your liquidity.
If you suddenly find yourself in a predicament, the first thing you should do is secure your liquidity. Therefore, it is important to immediately discuss the situation with banks and lenders and to inform them about the current company figures. But credit alternatives such as leasing, factoring and subsidies and equity capital can also open up new scope. In addition, companies should consider selling assets that are no longer needed for operations, such as time deposits, securities, and machinery and production facilities that are no longer in use. Likewise, reducing inventories and stocks of goods increases cash and cash equivalents. However, it is particularly important to manage receivables in a targeted and effective manner.
Veita simplifies the work of finance teams and executives with a cloud-based platform for managing and controlling invoices, payments and customer communications. As a result, companies cut out redundant steps and spend more time on value-creating activities. For a company's customers, Veita offers a customer portal for viewing invoices and making payments in all common payment forms. It is also possible for customers to suggest new payment dates, justify the delay and interact directly with finance staff. Direct interaction helps reduce disputes and speed up problem resolution; a good payment experience also increases customer satisfaction. In the end, this means not only realizing liquidity from receivables faster, but also increasing process efficiency in receivables management.
Further develop the business model
It is now crucial to take a close look at the business model: Does it still meet the new market conditions? How can products and services be adapted? What costs do such changes to the offerings entail?
Many industrial companies have recently started offering new services, especially online, and numerous retailers are expanding their Internet stores. This shows that crises by no means mean the end. They often offer the opportunity for a fresh start with a further developed business model. Anyone who develops a viable strategy for the future and has the courage to try something new can tap into new markets and market segments right now.
Do not hide crises
The best way for company leaders to report challenges to their employees is in a timely, factual and truthful manner. In this way, they can convince employees to pull together. They should also regularly discuss the current situation with managers and monitor the development of their own company.
Communication with customers and business partners should be as honest, transparent and timely as possible.
In addition to banks and financial backers, tax offices are also important contacts, for example when it comes to tax deferrals. Communication with customers and business partners should be as honest, transparent and timely as possible. This is the only way for companies to ensure that the parties involved stay on board. And that is the best condition for successfully restarting with a further developed business model.