Cash flow management is a priority for businesses; it can help companies remain stable and avoid insolvencies – especially in a crisis when survival is key. In a recent interview on LMD’s weekly TV programme, Portia Jayamaha – the Director of Finance of Richardson Holdings – noted that “it is like the bloodstream of a business – a good cash flow will keep it alive.”

“Businesses don’t appreciate cash flow management because it isn’t visible – but when it isn’t practiced, it’s very visible and only then do you realise how important this is,” she posited.

Jayamaha listed several benefits of good cash flow management, beginning with the ability to manage expenses: “It will ensure that an organisation has sufficient liquidity to cover its day-to-day operations such as paying salaries, taxes, rent and utilities on time. When these expenses are not managed, a business will collapse.”

“Secondly, you have to maintain a positive relationship with your suppliers. [Timely] payments will demonstrate the reliability and trustworthiness of the company, ensuring continuity of the supply chain and enabling you to enjoy credit,” she explained.

She continued: “Thirdly, when it comes to borrowing [from external sources], lenders and investors will always assess the cash flows of a company. And sound cash flow management will ensure that your creditworthiness is enhanced – and increase your chances of securing finance on better or favourable terms.”

“Finally, crises bring many opportunities. Cash flow management gives you the opportunity to see these opportunities,” said Jayamaha.

She highlighted options such as acquiring distressed assets, companies, talent or new technologies, stating that “all those windows will be opened if you manage your cash flow well.”

Commenting on how local corporates have managed their cash flows during the crisis, she commended Sri Lankan professionals for “contributing immensely to the corporate sector” by bringing in “robust cash flow management systems, good management practices and financial discipline to organisations.”

The picture is slightly different for SMEs, according to Jayamaha. Despite enjoying many benefits – including creativity, agility and a risk taking spirit – they are limited in terms of resources and expertise in financial management, technology, marketing and regulatory compliance.

“When you look at their cash flow management, they have restrictions on access to finance because of limited collateral, poor or a lack of credit history and poor presentation to financial institutes. All this will raise concerns to access finance,” she noted.

Jayamaha offered several recommendations to companies to manage their cash flows better: “It’s important to look at cash flow as a group rather than at a strategic business unit (SBU) level. If you do that, companies should be able to craft a group survivor strategy rather than struggling individually.”

She elaborated: “If you look at projects as a group, you can prioritise, and pick what is better and will provide better returns. So if it hasn’t been done already, it’s good to create a group treasury in a business whereby you manage or move cash between companies to better manage cash flows.”

“And as a group, when going to financial institutions, you’re stronger and can negotiate better rates,” she added.

Richardson Holdings’ Director of Finance also spoke about the importance of good cash flow management in nurturing innovation, which is necessary for businesses to remain competitive.

In this context, she explained: “Innovation is more of a necessity but you can’t do it if you don’t have enough cash. So it’s essential to strike a balance between allocating resources for innovation and maintaining healthy cash flows.”

“As corporates, we need to innovate, find solutions, provide employment and always try to be better,” Jayamaha said, stressing that “if we do that, we will have a better Sri Lanka.”