Member Article

My business has liquidity needs... What can I do to keep this situation under control?

As the coronavirus has already made a serious impact on the world economy, companies are faced with important liquidity needs. In uncertain times, easy access to cash can become rare. What can you do?

First, approach what is probably your most clear source of liquidity, your bankers. They will be best placed to understand your need for liquidity and how it relates to your day-to-day business, which is now no longer operating in ‘business as usual’. In Belgium, the public authorities are taking measures to alleviate certain obligations on banks to make it easier for them to grant credit to their clients. The National Bank of Belgium has repeated that the banks operating in Belgium are “solid and sufficiently capitalised to undergo important shocks”. This, combined with the additional measures, creates sufficient capacity to support and finance companies.

However, it is not a one-way street. Instead of looking at your bank, your business can take several types of action that have a positive impact on your need for liquidity or working capital.

Not all businesses are affected in the same way and some are even in high demand these days. Consider which of your suppliers might be willing to extend payment terms, even for current invoices. Such supplier credit could reduce substantially your increased need for liquidity, especially as the coronavirus effect is currently expected to lessen within months.

Be more strict on customers that always take a long time to settle invoices. Kindly remind them that prompt payment is an essential element of a good commercial relationship. You can even temporarily shorten payment terms or even give priority to customers that can pay immediately. The latter is to be carefully considered with your commercial and legal teams to avoid claims or long-term damage to commercial relationships. Maybe some customers need some products less and would be fine with a reduced delivery schedule.

If your company is part of a cross-border group, some solidarity can also help your liquidity needs. Pooling the cash of the various entities and directing it to the ones with the highest needs is something in which your bank can assist.

Selling receivables (factoring) at a price that is still interesting for you is a way to convert future payments into immediate cash.

If important capital expenditure is upcoming that also creates other costs (extra personnel, installation services, etc.), talk to the supplier to postpone the actual delivery by a couple of months, even if this has a small, short-term cost.

In any event, verify carefully your contracts relating to your supply chain and document properly any new or temporary arrangements.

The above information is merely intended as comment on relevant issues of Belgian law and is not intended as legal advice. Before taking action or relying on the comments and the information given, please seek specific advice on the matters that are of concern to you.