Having the resilience to survive the pandemic needs to extend into staying that way as the pandemic abates (whenever that is).
One imperative that has informed the operations of most corporates during the pandemic is business resiliency. Through the stress of potential liquidity crunches, supply-chain disruptions and work from home pressures, companies have bobbed and weaved their way with great resiliency. But what about once the pandemic is over? What will BAU, “business as usual,” be like after the COVID-19 pandemic loosens its grip?
At NeuGroup’s recent European Treasury Peer Group (EuroTPG) virtual meeting, sponsor HSBC noted that in the early stages, COVID-19 was a supply crisis, hitting the large production city Wuhan, prompting a manufacturing shift to other Asian countries; it was only later that it became a demand crisis when countries mandated that wide swaths of their populations stay home.
- Treasurers can learn valuable operations, risk and treasury-structure lessons for the post-COVID world from how the crisis developed and how it affected their businesses.
- A risk scorecard to evaluate the exposure to risk factors like 2020 revenue impact, operational inelasticity, reliance on key suppliers, input prices, cash and available credit, impacts on costs and debt metrics, and of course time to return to BAU, can be particularly illustrative.
Build a robust, centralized treasury with strong regional execution abilities. Large, global MNCs that have navigated the crisis well have shown the importance of having the right treasury structure, which emphasizes control and flexibility; the ideal set-up enables:
- Systems to deliver real-time, global exposure information.
- A centralized liquidity and risk management framework.
- Centralized policies and control structure and regional/local execution, where needed, via treasury hubs.
Go for operational flexibility and endurance to stay the course. With a widespread and long-lasting crisis, what is the company’s ability to:
- Access sufficient cash levels and credit lines, and ability to “flex” capital expenditures?
- Serve customers (and for customers to purchase goods and services) while the pandemic rages?
- Change its sales model, potentially increasing e-commerce and direct sales?
- Substitute and localize parts of the supply chains in a swift manner?
- Not rely unduly on offshore sources of materials and components?
- Recover lost revenues when the outbreak ebbs?
Supply chain finance was the original risk mitigation. Trade finance was “born as a risk management solution,” said HSBC in its session, and COVID-19 has put the spotlight on the importance of getting the supply chain in top form to withstand potential border closings and financing droughts.
- This has been borne out in reports from across the NeuGroup universe. Some members have had supply chain finance (SCF) vendors tell them that banks temporarily asked for wider spreads to compensate for their own higher funding costs.
- Other members worry more about how one unavailable link or part in the supply chain could metastasize into a larger material or component unavailability, thereby threatening a key product line.
Make someone happy. For its part, HSBC said it was also focusing on supporting the corporate supply chains of its current clientele while also extending its services to new customers. A presenter said the bank wants to support suppliers to avoid shortages by offering HSBC’s balance sheet for:
- Classical trade instruments to match liquidity generation and supplier risk mitigation: Here, supply chain programs should consider documentary payment terms to mitigate long receivables risk and enable financing; documentary payment terms are also cheaper than letters of credit.
- SCF to support suppliers’ liquidity position and mitigate concentration risk via receivables finance and forfaiting.
Open-account financing to established, single-flow key suppliers.