COVID and Corporate Treasury

Report date: 
13 Jun 2020


This is a case where we covered an emerging topic to share experiences. We hope you found it useful – there was a lively discussion, with a lot of helpful input.

This is very much an evolving situation, so no-one can assess the full impact. China remained closed for an extra week following the Chinese New Year holiday: this will bring a natural slow down for the first quarter, but is not itself too serious. As the country returns to work, we are starting to see whether activities will be fully restored.

Most people on the call have implemented working from home for their treasury staff in China and some other Asian countries, so treasury operations are not directly affected. Banks are doing the same thing, so not all services are fully up and running.

Most companies have implemented travel bans to China, and sometimes all of Asia, with voluntary self quarantine periods for people who return.

Despite this, there have been some direct treasury impacts: some payments were missed due to the extension of the CNY holidays, while one participant has LC payments which have not been received as the documentation flows have been interrupted. There is a general expectation that working capital and liquidity management will be more difficult.

Some activities, such as customs clearance, manufacturing activities and transport, cannot be done from home. There is evidence that these activities are resuming, but it is not yet clear whether that will be at full pace. One company had significant problems trying to get face masks (required to allow work to resume) into the country, due to a lack of transporters going there. But they eventually succeeded. 

The potential impact on business varies from one company to another. People with a large exposure to the Chinese market will suffer most, as that market will inevitably slow down. Companies with long international supply chains are at risk, but the impact is not clear yet. The airline industry is already suffering, as most airlines have suspended flights to the country, and internal passenger traffic has dropped significantly.

Most treasurers see potential issues with cash flows, as customers will struggle to pay. None see this as a major issue: most will fund any shortfall in China from intercompany loans (note: be cautious about how the regulations may evolve), and most think they have enough alternate sources of supply.

Several companies will re-evaluate their business continuity plans following this event. Some had very detailed plans – but they did not necessarily fully address this particular situation. Most are finding that, even where there are alternate sources of supply, it takes time to re-direct supply chains. Also, it was not always clear that the alternative suppliers do not, in turn, have a dependency on the affected regions. One participant’s experience was that it was most effective to have a pre-defined disaster management team to take quick decisions, rather than have a detailed plan which might not fit the particular emergency. 

One participant has a policy of holding between eight and eleven months of inventory – not ideal from a working capital viewpoint, but very helpful in this situation.

No-one seemed to have given any thought to the possibility this might spread to other countries.

It may be useful to reconvene in two to three weeks’ time, as we get more clarity


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