Working capital, not a very complex topic during my economic studies: current assets minus current liabilities and some ratio formulas to learn and understand. While I gathered more working experience, I found out the reality was more complex. I understood that from business perspective an enterprise needs to, also, take customer and supplier relations into consideration. During my master’s studies in business administration, I learned to focus more on the external environment and value chain. The topic of working capital became more complex once seen in a bigger perspective.
Working capital optimizations such as just in time deliveries, extended vendor payments, efficient supply chains and credit management help us to optimize our working capital. But how does Covid-19 interfere in these optimizations? In this article I am sharing my thoughts on working capital management in Covid-19 perspective.
What business are you in?
If you are running a business in on-the-go-snacking, due to the pandemic, your revenues will probably drop down. In case you are a retailer in groceries, your revenues emerged. Be aware of Covid-19 impact on your revenues. On the other hand, due to Covid, what is the impact on the cost-side of your Profit and Loss Statement? Do you have to make additional costs due to Covid-19? For example, additional costs for protective face masks or the hire of additional workforce. Or can you save costs on travelling and rent of offices? Make sure you have a clear overview on the (financial) impact of Covid-19 on your business.
What is your place in the value chain?
Well done, you have managed to negotiate a payment term of 60 days with your vendors, while your costumers will pay on 30 days. But how sustainable is this in current crises? What if your supply chain is strongly dependant on your key suppliers and you will miss revenue in case your suppliers don’t deliver in time? What is the impact of Covid on your suppliers? And what is the impact of Covid-19 on your customers? Be aware of your place in the value chain and think about the circumstances you suppliers and customers are operating in.