From this forum of opinion and ideas, that is the Alvantia Blog, we would like to put forward our humble vision of the situation in which we are currently embroiled, and will continue to experience over the next few days and weeks. We will look at this in a strictly economic and financial context and particularly from the point of view of a simple analysis and forecast of what may happen in the coming months, specifically, the liquidity that the network of SMEs and the self-employed will need.
We are experiencing an exceptional and abnormal situation, unprecedented in several generations: a pandemic of modern times. Our way of life, interrelationships and globalization; our desire to be everywhere, to sell everywhere, to consume wherever and whenever; our enthusiasm to explore the world, interact and share everything; and our demands to be aware of everything that’s going on have all been put on hold. In our societies where moving around is not a problem, where communication and access to information is global and where the suppliers and services are potentially universal, everything is accessible, everything can be hired and everything is possible. It seems that we only understand life if we live it at an electrifying pace, fully immersed and fully engaged, absorbing the days, the weeks and the years. In general, we are not used to going without essential goods, being deprived of basic needs, or, indeed, suffering. This has been our modern western way of understanding life and it has been put on hold. We do not criticize it, we only expose it and present it as it is. This way of life has, perhaps been the great cause of the state we now find ourselves in, the catalyst of a situation that has appeared out of the blue and has left us wondering how we have managed to get here and how we can come to terms with it.
Today is March 30th, and we are therefore, without a doubt, in the eye of the storm, at ground zero of the pandemic. Our view of the situation today is certainly complex and delicate: freedoms are being restricted, many companies are at a standstill, workers are being made temporarily redundant, our children’s studies are being frozen, all leisure activities are disappearing and, above all, thousands of people are muddling through unfamiliar circumstances which would have been inconceivable just two or three months ago. Family members have been affected and some are either suffering or even dying. Thousands of courageous people are dedicating their best efforts to getting us out of this as fast as they can, in hospitals, on the streets and in the fields.
What can we do, how can we help? Many of us will be wondering about this from our isolation or confinement. The truth is that there will be an infinite number of measures and decisions to be taken, both from the point of view of the goverments and from the private sector, from companies, businesses, shops and so on. Many of those measures and decisions will seem tremendously drastic and challenging and it will only be possible to really understand them within this framework and from an idea of survival and future continuity.
From the perspective of Trade Financing, it is clear that the repercussions will also be huge: sales not made, income not obtained and payment obligations that can be met neither by suppliers nor banks. Each one will have to assess how best to deal with the consequences of this situation and try to handle the tools, capabilities and products that they may have at their disposal, either their own or those provided by third parties (Banks, Companies, Government).
Now more than ever SMEs or businesses must evaluate what the working cash flow of their company will be; their net cash flow or whatever we want to call it. In summary, they will need to define their liquidity needs so that they can continue to run their companies through these extremely challenging times. In other words, this is nothing new, since this concept of flow of collections and payments and necessary liquidity are things entrepreneurs know well because they are key to everyday business and ensure that the virtual/real circle of their activity never stops.
What measures or solutions may now appear particularly interesting? In a scenario of potential recession, clear crisis, possible lack of confidence and even recovery, it is very important, in the first place, to provide security to those suppliers which supply us. To this end, there are solutions in our market which can help us:
-Setting up a Confirming line with Delayed Payment or a Financed Payment line can help us to achieve what we most need now: getting suppliers to supply us because they have no doubt that we are going to pay them on time.
-Providing ourselves with a line of financing for these payments, systems that allow us, if necessary, to delay payment of the remittances to the entity, adding extra time to that which had been agreed with our suppliers.
-Providing our suppliers with an indiscriminate line of financing. These mechanisms are now, more than ever, tools that we must consider in order to move forward.
These mechanisms are now, more than ever, tools that we must consider in order to move forward.
Other solutions providing working capital, and which help us keep the supply chain moving, are related to collections. Boosting our clients receivables by using factoring lines or simply by receivables discounting, are solutions which immediately generate cashflow and which are very relevant at present.
However, we might ask ourselves, whether the banks will be willing to grant us a credit line in these products? It is clear that banks will also be asking themselves how they can help their clients, how they can facilitate that liquidity which is the “life blood” of the company. We must consider the support and credit lines that the governments can implement through the institutions that have this task. It is also very important to appreciate that to get these lines from the entities we work with, we must communicate and share our plan, as well as being able to demonstrate that we have the capability and resilience to succeed and that we only need time and support.
In short, ensuring payment to suppliers, generating confidence, obtaining liquidity quickly with respect to the sales we make, obtaining time extensions from our financial institutions, … These are all formulas that we must consider and assess at this time as we adjust to these trouble times that we are in and where we will be for some time, a place where continuous dialogue, collaboration and mutual support should be a way forward for us all.