Credit Manager Magazine 9/2021

32 CREDIT MANAGER MAGAZINE WRZESIEŃ / SEPTEMBER 2021 FECMA Covid-19: Managing turbulent times The Covid-19 pandemic was not only unprecedented but it is having a huge negative impact on the global economy. Although we are now experiencing relaxed measures, thanks to the vaccine, leading economists still predict remarkable shrinking economies, high rise in unemployment which would lead to social unrest, and financial future consequences of the unpredictable high budgets allocated to the NHS by every country in order to fight this virus. Josef Busuttil MBA (Henley), DipM MCIM, FCICM, Director General - MACM The Covid-19 pandemic was not only un- precedented but it is having a huge negative impact on the global economy. Although we are now experiencing relaxed measures, thanks to the vaccine, leading economists still predict remarkable shrinking econ- omies, high rise in unemployment which would lead to social unrest, and financial fu- ture consequences of the unpredictable high budgets allocated to the NHS by every coun- try in order to fight this virus. We, who are in business, know well that busi- nesses are struggling to manage this reces- sion, especially those that were highly geared and inadequately capitalised before this pan- demic outbreak. It is, therefore, highly commendable for all businesses to continuously monitor changes in the traditional ‘business norms’ in order to identify any opportunities whilst manage any potential risk as early as possible, maintain a healthy cash flow and avoid unnecessary bad debts in order to survive this extraordinary challenge. In my opinion, to manage this recession, one has three main options ( depending on the in- dustry type ): 1. Increase capital and cash flow by taking up more credit or loan facilities from a financial institution or from trade suppliers, while continue deploying the current systems, pro- cesses and procedures, hoping for the best to come sooner; 2. Reduce running expenses and raise more capital by selling some of the organisation’s assets, decrease the departmental budgets, and make employees redundant or make them work on reduced hours; 3. Restructure by investing in innovative sys- tems, processes and procedures, that would result in cost effective ‘modus operandi’ in order to survive the recession and also to prepare the business organisation to benefit from the recovery when it comes. It is not the easiest task to decide which op- tion is best for a business organisation during such a deep economic crisis, especially when demand for products and services decreases significantly or disappears completely, cash flow is at its worse and profit shrinking. At face value, the first two options may look more feasible as they may both give prompt results, but what about the long-term impli- cations? For you to ponder! • Taking up loans and credit facilities at very low interest rates on offer today is tempting. But what would be the effect on cash flow and profit, especially if the business is already highly geared? Loans and credit facilities taken today should be repaid tomorrow! • What would be the effect on the oper- ation of a business, if the budgets for marketing, sales, operations, training, IT, R&D, and for the credit function had to be reduced? • What would be the impact on the future performance and possible growth of a business organisation, if one had to di- vest or sell some of the firm’s assets and resources? • What would be the effect on the em- ployees’ motivation, if they had to be forced to work on reduced hours and some of them had to be laid off? • How effective and efficient a firm would be when the recession is over, if the skilled and experienced people had to be laid off and probably they would end up working with the competitors? These are the questions that one should ad- dress before choosing the strategy to manage this recession. I would personally take the longer, the tough- er, and the most laborious route – the third strategic option - as I strongly believe that a recession period is the ideal time to invest for the future, to ensure that the business organ- isation is in a state of readiness to capitalise fully when the economic and financial recov- ery begins. A compendium of business studies contend that improvements in the internal systems, processes and procedures would result in better profit. And this also applies to the “I strongly believe that a recession period is the ideal time to invest for the future, to ensure that the business organisation is in a state of readiness to capitalise fully when the economic and financial recovery begins.”