Managing cash flow during a period of crisis

Recent measures on the Covid-19 pandemic have had a major impact on all aspects of daily life and undeniably also on businesses. The global economy has taken an unexpected turn and business leaders now face immediate challenges, including managing their cash flow.

As we deal with the ‘now’ of the Coronavirus crisis, some businesses are still in survival mode trying to secure their financial stability and operations. Others are starting to reflect on ‘what next?’ and for all businesses, cash flow and VAT planning to improve cash flow remains the key consideration.

Cash flow planning

The accurate monitoring of cash planning is essential in every business. Creating value – and eventually, profit – requires a company to have a positive cash flow. This entails more money coming in than being spent on the running of business operations. A positive cash flow (or equivalent surplus) means that a company can increase its cash reserves. This generally leads to additional investment in future operations and dividends being paid out to shareholders, and the availability of funds to clear future credit payments.

A healthy cash flow

Cash inflow is the life force of business and puts you in a better position with better buying power. 

Flexibility: A strong cash flow provides better flexibility to your business when you confront evolving problems or making crucial decisions. You can confidently make critical purchases in the near future if your cash flow is strong. A strong cash flow can also strengthen the bond between the company and its owners and makes your business more appealing to any lender if you want to get new debts. It can also attract new buyers.

Credit Management: Effective cash flow helps you manage your debts in a better way. Essentially, you need a positive future cash flow to pay for your debt commitments.

Growth: A strong positive cash flow helps a business to invest in growth. Constructing new places, investing in research and development, renewing infrastructure, improving technology, etc. can make your business grow and improve with a strong positive cash flow. It can help your company operate in a strategic and practical way.

You can’t control what you don’t measure

Cash flow and VAT management need to be an integral element of a company’s overall risk assessment, crisis management and action planning.

With the pandemic, businesses need to forecast their cash flow and do VAT management on a more regular basis. This should include all your projected income and outgoing expenses. It should also include whether you have deferred any rent, tax or credit payments. 

VAT management and your cash flow

One of the first actions to be taken in a cash flow crisis situation is an in-depth analysis of your VAT management. VAT can provide a helpful contribution to cashflow, reducing the need for external sources of working capital such as costly bank overdrafts and loans, which actually reduce your cashflow and profitability.

There is a basic principle at the heart of managing VAT cash flows – output tax paid as late as possible and input tax claimed as early as possible. Perhaps a more fundamental principle, however, is one of ensuring the business does not charge or incur VAT where this is not necessary. An important factor is also to ensure that everything is accounted for, recorded and filed timeously to ensure benefits and no penalties which will in turn affect cash flow. This helps reduce working capital tied up in VAT balances and leads to VAT savings.

Solutions like the VATSolve Cash Flow Benefit, a centralised VAT tracking, administration and reporting service can assist with cash flow management. This solution automates and consolidates your organisations VAT returns timeously and accurately, resulting in cash flow and improved business efficiencies. This also offers real-time and historic access to all VAT data.

With cash as a key indicator of the financial health of a company, optimising cash flow and ensuring the correct cash position is reported each month, is critical. VAT over or under-payments and late submissions can severely impact cash flow and influence business decisions. Large South African corporates using VATSolve Cash Flow Benefit save between R20 Million to over 150 Million Rand per month! VATSolve’s Cash Flow Benefit enables organisations to optimise cash flow by ensuring the accurate allocation of input and output VAT to the correct period. VATSolve is a complete VAT management solution for SAP that offers the benefit of submitting a single VAT return for multiple entities. It provides finance departments with increased productivity, it drives efficiencies, optimizes cash positions and reduces risk. VATSolve, a South African-developed solution designed to address specific challenges associated with VAT regulation, complexity and compliance offers a VAT solution for SAP users that automates and consolidates VAT returns timeously and accurately with increased cash flow and improved business efficiencies. VATSolve is so confident that their solution delivers exceptional service and achieves what it sets out to do, that they offer a try-before-you-buy for qualifying clients. If you would like to know more, get in touch with us at info@vatsolve.co.za

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