|
THE past global financial crisis had an impact on many organisations, including those on the 2009 Enterprise 50 Awards list.
Signs of financial distress were felt by many, with profit and cash flow pressures, strained lender relationships and deference of capital expenditure. One key challenge for small and medium-sized enterprises (SMEs) was credit risk.
Mr Danny Teoh, managing partner of KPMG LLP in Singapore, says: 'A lot of companies were having problems collecting debts or facing the risks of breaching their covenants.
'Often, SMEs do not have the sophisticated credit information that larger organisations do in order to understand the extent of their credit risk. That is why knowledge of customers and the company has with them cannot be marginalised.'
According to Mr Teoh, the good companies had proper credit policies. This included strong credit monitoring practices to monitor the debts that were outstanding and having proper procedures to collect debts. These companies knew they needed to understand their customers' credit worthiness even before engaging them.
At times like this, it is paramount to stay liquid and not take significant risks, as capital is scarce or expensive. Those with cash will be presented with many investment and acquisition growth opportunities.
Coming out of a tight credit market, organisations may still have to look within their organisation to improve their liquidity.
This may include exercising a tighter credit control over working capital or improving their cash cycles. They could also look into deferring non-critical projects to conserve cash or divest non-core assets to free up cash.
They should also re-evaluate their cost structures and find ways to release cash. These can include co-sourcing arrangements, shared service centres, streamlining infrastructure or business process optimisation initiatives.
'The objective is to make the organisation leaner and more agile, thereby helping to build a sustainable cost advantage for the longer term, and when the economy improves,' says Mr Teoh.
In addition, organisations may also need to provide a sense of assurance to their bankers.
Financiers like to see proactive and disciplined customers. This may be in the form of belt-tightening initiatives, a realistic forecast of cash requirements, or perhaps independent parties to come in and assess their situation.
Organisations need to treat their employees with integrity.
Successful companies that have the foresight of ensuring policies to retain talented employees are also better prepared for the upturn.
Mr Teoh advises: 'The whole concept of 'fire in the downturn, and hire in the upswing' can be dangerous. When markets turn around, these companies may not be able to find the correct expertise in time for growth.'
This article was first published in The Straits Times.
| 
