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Posted on 5/27/2020

Navigating business issues amid COVID-19: How data analytics can uncover key trends

Ben Smith, CPA

COVID-19 has created uncertain conditions for individuals, families, businesses and the broader community. While concern for public health is necessary, the government’s action to prevent widespread transmission has had a significant impact on many companies. The stay-at-home orders and forced business closures have resulted in a drastic reduction in demand for goods and services, requiring many businesses to carefully review cash flow and financing opportunities to help survive both the COVID-19 emergency and beyond. While the Payroll Protection Program (PPP) continues to be a lifeline for many businesses, and lines of credit and other loan opportunities may prove a necessity, there are other important steps businesses can take to proactively manage their situation. Data analytics can help businesses understand cash flow issues, invoicing opportunities and optimal inventory management strategies. To help decision-makers understand how data analytics can deliver critical business insights, an overview is provided below.

Accounts Receivable

Analyzing accounts receivable will help determine how a customer’s ability - or lack thereof - to make timely payments may impact cash flow. This requires historical information about payment behavior current outstanding invoices, and cash on hand for a predetermined period. While some basic conclusions can be drawn from the raw data and historical patterns, it is only a starting point for more complex analysis and modeling process that puts the impact of payment delays in a broader context. It highlights risk points and can lead to potential changes that can be made to reduce exposure. This may include identifying:

  1. How cash flow would be impacted if customers were unable to meet payment terms for an extended period (30, 60 or even 90 additional days)?
  2. What policies could be implemented to incentivize “high risk” customers to pay invoices in a timely fashion?
  3. What would it cost to discount invoices for prompt payment versus relying on a line of credit to maintain working capital?
  4. If payment terms should be adjusted based on payment history? How would that impact the ability to generate new business?

These are some important questions that executives are being forced to consider in light of COVID-19. While it’s expected the U.S. and global suppliers may be able to return to some semblance of normal business over the coming months, the impact of current actions could have a long-lasting impact on a business’s recovery and ongoing viability.

Inventory Management 

For manufacturing and industrial automation companies who manage inventory and rely on an international supply chain, the issues can be more complex. To understand how demand and inventory costs impact the company, historical data needs to be compiled and constantly updated with new orders, costs, sales and production data. Concurrently, information about supplier output and delays are also important, helping companies understand inventory and supply policies, how to manage supply delays and overall impact on cash flow.  This may include:

  • Which suppliers are most impacted by COVID-19?
  • What is the cost of shipment delays from international suppliers on production timelines?
  • Are current supply and inventory management issues creating cash flow challenges?
  • What policies should be implemented to reduce risks?

Developing a data-driven lens through which to address these questions is imperative to making the best possible decisions. Overall, data analytics provide a powerful tool to help businesses make objective decisions about policies, processes and resources in the midst of crisis. Easy-to-use reports and dashboards remove assumptions and emotions, providing a clear picture of the situation and the impact of strategic changes.

About the Author

Ben Smith, CPA | Clayton & McKervey

Ben Smith, CPA, leads the Data Analytics consulting practice at Clayton & McKervey. an Automation Alley foundation member.

 
 

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