Liquidity Management During Covid-19

Liquidity Management During Covid-19

As we all know that the covid-19 has disaster impact on economic activities and development of any industry. But knowing the problem means that we solve it. We just have to identify the impact of this pandemic on economic activities or the area and find the rightful solution that actually works. This article is based on the possible solution to liquidity crisis during covid-19 without support of government and financial institution. The bank and financial institution and government grants are outside factor and not within our hand.

Lets get back to fight liquidity problem during covid-19 through following points:

Making inventory management effective

As we all know that our business run on inventory, higher the inventory higher the possibility of sale of goods. It is true to some extent but in current situation we are unable to have high level of inventory due to shortage of liquidity but now it is time to use inventory turnover ratio into use. As Nepal has not been using the technique of inventory management it is right time to use it. The business house can produce goods on demand wherever possible, it can manage inventory to those level which do not effect the sales. Purchase frequently if possible and keeping liquidity in balance.

Making sales more on cash basis instead of credit

The liquidity management is must to survive the effect of covid-19. The business house shall focus on cash sales and generate liquidity quick as possible. The credit sales shall be discourage and if there is any credit policy to provide credit then it should be revised and reduce the credit period.

Management of Fixed Cost

The business house must manage fixed cost and if there is any fixed cost that can be eliminated or reduce, then it shall apply such. The fixed cost management is possible by analyzing the cost that are not necessary for core business and transferring it to other sector with core business. Many warehouse rent and storage space may be released which are used only at on-season time. Employment is more effective to manage market than to release the employee. But at the time of such pandemic, the reducing wage rate to some extent may also help to manage fixed cost. If the business house is shut down then it create more unemployment problem than that of reducing rate of wage.

Making Recoveries More Effective

The business house has to make recoveries from trade and other receivable more effective by providing some short of discount or facility to the customer. But the discount rate shall be near to bank interest to receive advantage from saving to bank interest and make less burden to customer on the other hand.

Making Budget and Applying strictly

Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. The business house shall use cost-benefits analyze to make the budget effective. The variance in budget shall be analysed monthly and make effective changes for proper implementation. This process shall be effective for managing liquidity.

Encourage Saving

If possible make enough saving during this period. As expenditure is high but revenue is near nil, the concept of saving may not make any sense. The only way to make saving might be by reducing cost and expenditure. The saving made at this period shall help the organization during any unforeseen crisis other than this pandemic or from the effect of the pandemic.