Operating cashflow challenges in the short term are creating major challenges for many  businesses, as the COVID-19 pandemic creates unprecedented levels of disruption and uncertainty on a local and global scale, according to the latest review released by KPMG in Saudi Arabia, the leading provider of audit, tax and advisory services in the Kingdom.

A recent report, ‘Improving Cash & Working Capital Management,’ outlines four fundamental steps that companies can take to building a robust cash management strategy and safeguarding the future of the business in the current challenging business environment.

The report suggests companies, regardless of industry or size, to gain visibility and control over cash flows by making use of 13-week rolling cash flow forecasts that are prepared on an expected receipts and payments basis, by business line and jurisdiction. It further states the importance of conducting weekly variance analysis of cash flows, understanding the reasons for variation and to form cash committees to meet weekly, with participation by all function heads and having aligned KPIs.

Fuad Chapra, Head of Family Business at KPMG in Saudi Arabia, comments: “during the current challenging times, a robust level of preparedness and proactive response can help businesses navigate through these unprecedented times. Though cash management often is regarded as complex, it does not have to be this way.”

He advises companies to consider working capital needs in the context of overall business requirements for the weeks, months and foreseeable future ahead. 

“Consider your working capital strategy holistically. Our experience indicates most businesses can drive improvement and unlock cash from at least one, if not two areas of the working capital cycle, which includes trade receivables, inventory and trade payables.”

Chapra recommends companies to address slow-moving, obsolete stock by critically examining forecast production requirements, the need for buffer stocks and SKU assortment, to avoid tying up cash in unproductive inventory.

In addition, companies need to review trapped and illiquid cash within the group structure and use treasury pooling structures to make more effective use of available cash lying idle within the group structure.

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The document furthermore recommends to review the tax efficiency of operations, including zakat, VAT, customs and excise, and make use of any opportunities offered by the government to defer or reduce payment of zakat and fees, while ensuring potential refunds are pursued.

Likewise, companies need to think strategically by making cash management a boardroom priority, since effective cash management is a top priority for leading global businesses.

“Cash is key to the survival and growth of any business. Gaining visibility and control of cash flow, and optimizing working capital can help a company to provide a buffer against unexpected market shocks and release cash to deal with rising costs,” Chapra concludes.

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