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2020 09 04

How to prepare for winter

This spring’s Covid-19 crisis had a severe impact on the European business environment, entirely paralysing and catching several industries off their guard. While interacting with our customers, we also noticed that this summer is intense and entrepreneurs, instead of relaxing, look for ways how to maintain their businesses and prepare for a recession in autumn.
Ilva Valeika
Ilva Valeika / Asmeninio archyvo nuotr.

An Intrum research shows that companies keep their business development expectations for the nearest future very moderate; 56 % of surveyed European entrepreneurs believe their country is already in recession or is likely to be within a year (in Lithuania – 60 %). Indeed recent flashes of Covid-19 at various spots in Europe make us expect new challenges in autumn. The good news, however, is that there is time for preparation this time round.

Although the Intrum survey depicts that business in the Baltics, which were not as severely impacted by Covid-19, are relatively more optimistic than the European average, still about half of our entrepreneurs expect a recession of European economics that will decrease the customers’ ability to pay for goods and services in time. Entrepreneurs are concerned that this might have a negative impact on income, the attraction of new employees, company liquidity, and even their ability to exist in the future.

What are the chances to prepare for these future challenges?

First and foremost, the basis for business viability is a healthy bloodstream, namely, balanced cash flow. During a crisis, follow-up of the business’s cash flow is essential for timely identification of problem areas and adoption of measures that will keep the business healthy. Constant feeling of the pulse is important therefore. Unluckily, weak cash-flow control at such a moment may turn out to be a severe stumbling block. It is essential to act as soon as the first late payment signals appear to prevent a decline in cash flow and liquidity. Our research shows that 69 % of respondents in Europe (in Lithuania - 59 %) have already been impelled to accept unfavourable payment terms, accepting longer invoice payment deadlines in the best interests of customer relationships, for instance. When planning a business’s cash flow, it must be expected that invoice payment discipline will continue to decline during the crises.

If, however, a business’s own strength proves to be insufficient and cash flow becomes more and more unpredictable, it is important to turn to professionals for their support in restoring a more solid cash flow. Efficient invoice management is critical for businesses in order to secure solid, predictable cash flow; from administering the invoice management process to everyday customer operations such as early late-payment reminders and the development and control of a payment plan in cases where the delay in payment has become chronic, or even such final decisions as debt recovery by taking legal action if extra-judicial measures have proven inefficient.

Second, when preparing for the scenario of an economic downfall, it is important to utilize any available funds as rationally as possible and evaluate the contribution of all expenses to future business development. If business performance is sufficiently continuous this may not be the right time for high-risk transactions; more effort should be invested in maintaining existing, rooted customers or, on the contrary, in seeking for new niches that may unexpectedly open up under the influence of the crisis. Moreover, it is significant to evaluate reduction possibilities for costs such as rent, leasing instead of purchasing equipment, temporary instead of full-time attraction of employees a. o. Intrum research demonstrates that already 38 % of European businesses plan to reduce costs, while 35 % intend to be careful towards the contraction of debts. However, without trivialising the idiom that "there is an opportunity in every crisis", it is comforting to know that 25 % of European businesses plan to increase their trade volumes.

Unfortunately, economic recession scenarios do not exclude the possibility that even with most sophisticated cash-flow management and rational expense planning, some unpopular decisions will need to be taken such as, for example, concerning the downsizing of production volumes, employees dismissal, or salary reduction. It is essential to evaluate possibilities for improvement of business operations now to be prepared to act promptly if necessary.

However, in contrast to the shock in spring, businesses have a little more time at their command for preparation, and this must be taken advantage of. The success story of each business will make a contribution to a more successful overmounting of the crisis both for the country and Europe.

* The research project "European Payment Report 2020" by leading European credit management company Intrum was conducted this spring (from February until May) in 29 European countries. It was carried out by international research company Longitude, a member of the Financial Times group, by surveying 9980 businesses representing 11 different industries. Click here for the entire research text (in English): www.intrum.com/epr2020-whitepaper

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