11 Maio, 2020 | Advisory

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10 Measures to Accelerate Your Company's Liquidity

Tip #3 | 11.05. 2020 | 10 Measures to Accelerate Your Company's Liquidity

Exception times require exceptional measures, namely in the capacity to plan based on alternative scenarios, depending on the uncertainty that characterizes the current times. For the management to be able to plan and make decisions, it is necessary that the financial information has quality and fundamentally it is processed in a timely manner.

Businesses don't go bankrupt for lack of profits. It's the lack of liquidity that kills them.

In this context, below are 10 DFK recommendations so that you can control and improve your company's liquidity flow.

#1 Track cash flow daily – cash is king

Create a daily, weekly cash flow tracking procedure with the following key indicators: Funds In, Funds Out, Bank Balances, Amounts Receivable and Amounts Payable, both with reference to the age of balances.

#2 Exercise strict control over receivables

Follow up the amounts to be received weekly. Create normal billing procedures by sending accounts receivable statements. Clearly define a credit granting policy. If customers do not settle their debts within the established deadlines, decide on payment plans or by sending the balances to litigation.

#3 Review the billing process

Product invoices must be issued at the time of shipment of the goods.

Invoices for services arising from projects or worksheets must be issued in accordance with the dates stated in the established contracts (whether under general or specific conditions) and the imbalance of incurred costs that do not correspond to the invoices issued must be avoided.

#4 Pay attention to VAT refund requests

If there are VAT refund situations, the request for refund to the State should be considered, thus speeding up the frequency of these requests (every month or quarter, according to the reporting frequency),

#5 Check whether you can recover VAT on arrears or bad debts 

Recourse to the recovery of VAT contained in credits in arrears or considered irrecoverable is today a more expeditious process, the State Budget for 2020 provides for the possibility of recovering VAT on credits older than 12 months.

#6 Review the control process for recording supplier invoices

The registration and control of invoices to suppliers should be done in management modules outside of accounting. Avoid that the control of supplier invoices is carried out by accounting. The accounting should only reflect the movements that took place in the management of accounts payable. Maintain a procedure for recording invoices regardless of their approval and verification. This procedure avoids the non-recording of invoices and, therefore, VAT failures to be deducted from the respective VAT returns.

# 7 Proceed with the optimization of amounts payable to suppliers

Suppliers are also business partners. The credit allowances granted by suppliers should be used to the fullest, however we draw attention to the fact that the use and abuse of supplier credit may jeopardize future supplies of products and services. Make the most of any financial discounts in the advance payment of amounts to suppliers.

# 8 Attention to inventory control

The inventory optimization process is essential for good stock management. Controlling the age of items in order to decide on the promotional sale of products or, at the limit, creating impairment losses for fiscal optimization of these losses are fundamental actions for good management.

In the case of service companies, the control of WiPs (Working in Progress), that is, hours in progress consumed and not billed, is an exercise of great relevance to detect flaws in billing.

#9 Streamline the Automated Bank Reconciliations Process

Delays in recording expenses and income in accounting are largely due to the lack of justification for open transactions in bank transactions, namely due to the lack of supporting documentation. The daily, weekly and monthly justification of all bank movements is now possible through the automatic integration of bank movements in the Company's management systems.

#10 Stay informed about available treasury support credit lines

Stay informed about Government support measures and other financing solutions available in connection with the creation of liquidity arising from the pandemic. It should be noted that these lines have limits and criteria that may not meet the specific needs of companies. Government support for access to these lines is today and will in the near future be essential for financing companies. Access to these lines is often conditioned by the existence of debts to Social Security and the Tax Authority and also by the fragility of the company's equity situation, evidenced in a situation of equity close to zero or negative. These situations must be previously regularized.

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You know more about your business than any of our consultants, however we understand that given the experience we have in the analysis of certain processes, we can contribute to the process of optimizing your company's working capital needs.

Count on DFK's team of consultants.

Victor Santos

DFK Consulting

Partner