Managing cash flow and digitalisation to weather COVID-19

From left to right: Ng Li Lian, Head of Business Banking, HSBC, Julia Bensily, Director of Prime Structures, David Koh, Head of Global Liquidity and Cash Management, HSBC

The COVID-19 pandemic is proving a challenging time for businesses, who have to contend with declining sales, social distancing requirements, and a global economic slowdown. In this climate, according to Ng Li Lian, Head of Business Banking, HSBC, “managing their cashflow and liquidity will be critical every step of the way.” At the same time, she adds, “SMEs that are proactively reviewing and managing their risk, liquidity and cash will be in a much stronger position to weather this storm of uncertainty.”

One company actively dealing with the current storm while seeking to emerge stronger is home-grown Prime Structures Engineering, which has been involved in the construction of some of Singapore’s most iconic structures and has grown an international footprint. Even so, it has also been affected by the significant disruption to business experienced by the construction sector.

SMEhorizon speaks to Julia Bensily, Director of Prime Structures, Ng Li Lian, Head of Business Banking, HSBC and David Koh, Head of Global Liquidity and Cash Management, HSBC, on cash flow issues faced by SMEs in this period, steps for digitalization, and how these can contribute towards a company’s long term strategy.

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Cash flow issues faced by SMEs

Cash flow issues are one of the most pressing problems faced by businesses in this period, and is one of the specific pain points highlighted in Singapore’s budgets for this year.

Says Ng, “what we are seeing now is, even with the easing of the circuit breaker measures, social distancing requirements will continue to be tight and controlled. We are also noticing that several countries are being hit by a second wave of the virus, which is also a factor in the reopening of economies. SMEs can expect a continued slowdown from subdued consumer and business activity, at least for the rest of this year which will certainly impact cash flow.

“It is also hard to find opportunities to offset some of the revenue lost. We are seeing businesses implementing other measures to ensure long term sustainable operations, such as prioritising their supply chains as well as an increased focus on intra-regional trade.”

Similarly, Bensily shares that “the pandemic has significantly disrupted businesses in the construction sector.”

“Specifically, the Singapore government’s stringent measures and restrictions to respond to the explosion of cases in worker dormitories, has resulted in the sector receiving no income in May and June, and limited income for April and July,” she continues.

“With overheads and obligations to be paid and a commitment to our employees and their family members, our management’s direction was clear from the start, to cut costs to save jobs, not cut jobs to save costs, and to find ways to restart our business quickly and safely.”

On the whole, says Ng, “we are fortunate to be operating in Singapore with a government that recognises that managing cash flow through this time is one of the most critical concerns for businesses.

“To date, the government has announced four stimulus packages totaling $93 billion to support enterprises to support them in adapting in this environment.”

However, reminds Ng, “the economy cannot rely on Government stimulus forever.” Given the situation, she advises companies to have an understanding of their capital reserves and to be conscious of their inventory at all times and understand where they can free up cash.

“If a business is cash poor, but can avail loans, it is important to be aware of all options to leverage debt and clearly understand the process for financing the business,” she continues, adding that “if you feel like your business is threatened or you are facing considerable headwinds to growth, think about more extensive measures such as deferring capital expenditure on growth projects or exploring options to renegotiate payment terms with your supply chains, contractors or other third parties you may be working with.”

Digitalisation

With circuit breaker and social distancing measures in places, many companies have also been under pressure to digitalise. Says Bensily, “the pandemic and lockdown was and has been an unexpected agent of change for businesses to digitalise. Thankfully, we had the infrastructure for communicating with each other so team collaboration could continue remotely.” The company has further plans to digitalise their accounts processes and project management.

While digitalization is key to surviving in these times, many companies may still be reluctant to adopt to newer and more efficient ways. Shares Koh, “At HSBC we are certainly seeing an increased engagement from clients on our mobile app and have experienced a significant increase in the use of our digital trading platforms, but we polled our listeners in a recent SME webinar and found that a third still had a low adoption rate for electronic payments and collections.”

“It’s crucial that older generations and leaders have an understanding the deeper benefits of going digital, not only for the enhanced customer experience, but for the potential to increase business efficiency and operational improvements.

“When dealing with leaders or employees who are unwilling to digitise, remember that disrupting the workflow of employees will not necessarily be good for your business in the short term. Think about setting in place a process for change and digital business platforms, then gradually transitioning staff over to them.”

Making a digital start: adopting e-payments

One place to start is e-payments, which have been specifically mentioned in the fortitude budget. Koh agrees that e-payments are a great place for businesses to start to digitise.

“Many functions like payments, payroll and authorisation arrangements can and should be shifted to digital platforms for better efficiency, and most importantly, safety for staff through this pandemic,” he advises.

“The transition can be quite simple, and we have significantly stepped up our efforts to help clients digitise their banking needs.”

Of course, given the options available, SMEs should bear in mind what to look out for when making a selection.

Says Koh, “when choosing a platform, SMEs should be aware of the scope of its capabilities, asking if it addresses all of your business’s current needs.

“Platforms that provide simple, faster and smarter ways to manage online transactions are key, as well as platforms that report in real time, or as close to real time as possible.

“Also think about security, a breach of security while your business is under financial pressure can be devastating. This is your businesses financial information, so make sure your platform has multilevel, end-to-end security,” he adds.

In the long run, going digital is critical for long term survival. According to Koh, “improved customer experience is possibly the most tangible benefit to comprehend, but the business efficiency and operational improvements that digitisation can bring are substantial. Digitising payments and collections allow for real-time tracking of invoices and eliminates the need for manual updates, providing enhanced real time cash flow forecasting capabilities.

“For business owners,the elimination of paperwork can help with manpower costs and eliminate manual errors. Having a digital audit trail improves security and transparency to reduce the possibility of fraud. Digitising payments and collections also allow for real-time tracking of invoices, eliminating the need for manual updates and providing enhanced real time cash flow forecasting capabilities.

Facing the digital future

For Prime Structures, the future plans tend towards greater digitalisation to achieve better operational resilience and sustainability. Shares Bensily, “the lockdown has demonstrated that many jobs (such as designing, engineering, drafting, and quantity surveying) can take place remotely.

“This would change the function of buildings and the type of buildings we’d be required to build as well as the job description of the people we engage. Many of the foreign talents that we have engaged have proven to be able to work from home. We’re in discussions with them to continue working from their home country moving forward once international flights resume.

“Looking at the future, we’re looking at ways that we can continue changing skylines and we’re exploring how we can learn from other industries to be “essential” to the economy. Operationally, we’re also exploring ways that we can cut down our reliance on printed paper and go green. We hope to be able to halve our overall paper “consumption” in a year’s time,” she concludes.