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COVID-19 Pandemic hurts company cash flow

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As thousands of small-to-medium-sized enterprises (SMEs) in Cyprus slowly resume operations following the lifting of government restrictions due to the Covid-19 pandemic, one of the critical issues confronting SMEs aside from health and hygiene issues is how to boost cash flow for the business to survive in the current difficult environment.

With the government having failed to provide any tangible assistance, alternative funding solutions provider Eurivex Trade Finance suggests SMEs have the following options to consider in securing funding:

1- Resort to bank borrowing – this option is encumbered by the long time taken by banks to respond to clients’ applications, the collateral needed by banks to secure funding and the uncertainty attached to the business operation.

2- Injection of new capital – this is by far the most practical and least costly option but depends on the ability of the owners and their families to inject fresh funds into the business to boost cash flow to keep the business afloat.

3- Cost-cutting – very effective, but there is a limit to how much one can cut costs to free up cash flow. Staff redundancies could be an option, but if the SME participated in the government support scheme for employees, then technically layoffs are not allowed at least until October. In any event, letting key personnel go is a risky proposition since it will hurt the ability of the business to grow as things return to normal.

4- Shift to cash sales – is also very effective to boost cash flow while reducing credit sales, but for most businesses, this is not an option, a) because of the nature of the business, and, b) because the SMEs’ customers are also facing a cash crunch and can only buy on credit.

5- Invoice discounting and factoring – is by far the most practical way to immediately boost cash flow without the need to give personal guarantees or pledge other assets as collateral. Under this scenario, all new invoices issued on credit can be assigned to a trade finance firm and receive up to 85% of invoice value up-front.

Alternative funding providers

New entrants such as Eurivex Trade Finance Ltd (ETFL) say speed is critical as solutions are required urgently and no business has the luxury of waiting for either the government to provide guaranteed loans or risk becoming hostage to bank compliance and long delays.

SMEs need funding now which is why one of the best ways to secure funding is to resort to invoice discounting of the whole ledger or selectively assign the invoices of specific companies for immediate funding.

New entrants such as Eurivex providing alternative funding solutions have introduced fast and simple procedures to onboard SMEs with very flexible solutions for both local as well as overseas customers.

Companies need only to supply their latest audited financial statements and management accounts as well as debtors’ ageing for the initial evaluation, after which a funding offer is prepared with clearly defined terms and conditions including transparent and competitive pricing.

The likely relapse of the Covid-19 pandemic in autumn raises a need for financing contingency plans, not only for SMEs, but for all companies.

Such a relapse could have a catastrophic impact on businesses and the economy; hence businesses must be prudent enough to secure extra funding early enough.

The cost of securing such immediate liquidity is negligible when considering that it can save a business without putting additional pressure on the owners.