Navigating Business Through the Oil Crisis EP.3

Series: Navigating Business Through the Oil Crisis — EP.1 Costs Surging — How Much to Raise Prices? | EP.2 Supply Chain Disruption | EP.3 Don't Let Cash Flow Stall | EP.4 Strategic Planning Through the Crisis

Why Does Cash Flow Stall During the Oil Crisis?

Many wonder why sales are good but cash is short. The answer lies in the "timing" of cash inflows and outflows that changes during a crisis. Costs must be paid first but customer payments come later — this gap is the Cash Flow Gap that keeps widening.

Cause	Details	Impact on Cash Flow
1. Costs Rise Before Selling Prices	Suppliers raise prices immediately but businesses need time to adjust selling prices	Cash outflow increases immediately while cash inflow stays the same
2. Suppliers Demand Cash / Shorter Terms	From Credit 60 days down to 30 days or Cash on Delivery	Cash must be paid 30 days sooner
3. Safety Stock Increases = Tied-Up Capital	Fear of shortages leads to ordering more stock at higher prices	Capital tied up in inventory increases 20-50%
4. Customers Delay Payments	Customers are also affected, so they extend payment timelines	Cash inflow delayed 15-30 days
5. Shipping Costs Paid in Cash Immediately	Vehicle, shipping, and fuel costs are mostly Cash Payments	Cash disappears before products are sold

Example Numbers: Working Capital Cycle Before vs After Crisis

Item	Before Crisis	After Crisis	Change
Monthly Sales	10 million baht	10.5 million baht (partial price increase)	+5%
Monthly Costs	7.5 million baht	9 million baht	+20%
Gross Profit	2.5 million baht (25%)	1.5 million baht (14.3%)	-40%
Average Receivables (AR)	10 million baht	14 million baht (slower payments)	+40%
Average Inventory	5 million baht	7.5 million baht (stock more expensive + increased)	+50%

As you can see, even though sales increased 5%, the cash tied up in receivables and inventory grew enormously. Paper profits still exist, but real cash has vanished — a situation similar to the budget overrun problem many organizations face.

Working Capital Management — Formulas Executives Must Know

Managing Cash Flow starts with understanding Working Capital, which has the following formulas:

The higher the CCC = the longer cash is tied up = the tighter Cash Flow gets. Let's see how the oil crisis increases the CCC:

Metric	Before Crisis	After Crisis	Change
DSO (Collecting Receivables)	30 days	40 days	+10 days
DIO (Inventory Days)	25 days	40 days	+15 days
DPO (Paying Suppliers)	10 days (Credit 60 days)	15 days (reduced to Credit 30 days)	+5 days
CCC	45 days	65 days	+20 days

5 Techniques for Managing Cash Flow During a Crisis

Technique 1: Accelerate Receivables Collection (AR Management)

• Early Payment Discount: Offer 2% discount for payment within 10 days (2/10 Net 30) — lose 2% but get cash 20 days sooner.
• Weekly follow-up: Send Statements to customers weekly, not just at month-end.
• Prioritize: Focus on Top 20 debtors who account for 80% of outstanding balances.
• Run Aging Analysis: Segment receivables by age 30/60/90/120+ days — anything over 90 days must be escalated immediately.

Technique 2: Renegotiate Credit Terms with Suppliers

• Request Extended Credit Terms: From 30 days to 60 days by offering increased order volumes or long-term contracts.
• Partial payment first: Negotiate paying 50% on delivery and 50% within 30 days instead of full payment upfront.
• Find alternative Suppliers: Use them as bargaining power — if Supplier A pushes on Credit Terms, get quotes from B and C for comparison.

Technique 3: Reduce Unnecessary Inventory

• ABC Analysis: Item A (80% of sales) — keep full stock / Item C (5% of sales) — reduce stock to minimum.
• Sell stale inventory: Items sitting over 90 days — discount and sell to convert to cash. A small loss is better than tied-up capital.
• Just-in-Time ordering: Reduce Lead Time with Suppliers to order more frequently in smaller quantities — reducing capital tied up in inventory, which relates to Chart of Accounts principles for accurate inventory recording.

Technique 4: Cut Costs Where Possible

• Unnecessary expenses: Review Subscriptions, rent, and underutilized services.
• Defer non-urgent projects: Postpone non-critical CAPEX to preserve working capital.
• Reduce overtime costs: Improve production planning efficiency and eliminate unnecessary OT.

Technique 5: Prepare Backup Credit Lines

• Emergency credit facility (Revolving Credit): Secure the credit line in advance — no need to draw it down, but it's ready when needed.
• Factoring: Sell trade receivables to a bank, receive 80-90% cash immediately (1-3% fee).
• Trade Finance: Use L/C or Trust Receipt for imports to extend payment timelines.

Technique	Immediate Results (1-2 weeks)	Long-term Results (1-3 months)
Accelerate AR Collection	Receive some cash back faster	DSO reduced by 10-15 days
Negotiate Credit Terms	Delay cash outflow immediately	DPO increased by 15-30 days
ลด Inventory	Sell stale stock and recover cash	DIO reduced by 10-20 days
Cut Costs	Reduce cash outflow immediately	Save 5-15% of OPEX
Backup Credit Line	Cash ready to use immediately	Reduce liquidity risk

Cash Flow Forecast — Do It Weekly, Not Monthly

In normal times, a monthly Cash Flow Forecast is sufficient. But during a crisis, the 13-Week Cash Flow Forecast is an essential tool — because it helps you see when cash will run out before it actually does.

Example: 13-Week Cash Flow Forecast (First 4 Weeks)

Item	Week 1	Week 2	Week 3	Week 4
Cash Inflow
Customer Payments Received	2,500,000	1,800,000	2,200,000	3,000,000
Other Revenue	50,000	50,000	50,000	50,000
Total Cash Inflow	2,550,000	1,850,000	2,250,000	3,050,000
Cash Outflow
Supplier Payments	1,800,000	2,200,000	1,500,000	2,800,000
Salaries + Benefits	—	—	—	1,500,000
Transport + Energy Costs	350,000	350,000	400,000	400,000
Other Expenses	200,000	150,000	200,000	150,000
Total Cash Outflow	2,350,000	2,700,000	2,100,000	4,850,000
Net Cash (Inflow - Outflow)	+200,000	-850,000	+150,000	-1,800,000
Cumulative Balance	3,200,000	2,350,000	2,500,000	700,000

Exchange Rates — A Compounding Factor

Beyond surging oil costs, exchange rates are another factor that compounds Cash Flow pressure. When the baht weakens, import costs rise immediately + USD-denominated debts become more expensive. SCB EIC estimates the baht may continue weakening due to trade balance deterioration from higher oil import costs.

Baht Depreciation (per 1 USD)	Import Cost Increase	Impact on Businesses Importing 5 Million USD/Year
34 → 35 baht (+1 baht)	+2.9%	Cost increase of 5 million baht/year
34 → 36 baht (+2 baht)	+5.9%	Cost increase of 10 million baht/year
34 → 38 baht (+4 baht)	+11.8%	Cost increase of 20 million baht/year

Currency Hedging Techniques

• Forward Contract: Lock the exchange rate in advance, e.g., agree to buy USD at 35 baht in 3 months — even if the baht weakens to 38, you still buy at 35.
• Natural Hedge: If you also earn revenue in USD, use USD revenue to directly pay USD costs without converting to baht.
• Multiple currencies: Diversify imports from multiple countries instead of relying solely on USD.

Managing exchange rate risk is part of enterprise risk management that executives must plan in advance.

How Does ERP Help Manage Cash Flow?

Effective Cash Flow management requires data from AR, AP, Inventory, and Bank connected in a single system — which is what ERP does better than using separate Excel files per department, as a comprehensive accounting system provides a complete financial overview.

ERP Module	How It Helps Cash Flow	Data Obtained
AR Module	Automated receivables tracking with pre-due-date alerts	Aging Report, DSO, list of overdue receivables
AP Module	Plan payables by priority	Payment Schedule, DPO, Cash Requirement
Cash Management	View real-time cash balances across all accounts	Bank Balance, Cash Position, Fund Transfer
Financial Reporting	Automated Cash Flow Statement + Projection generation	Cash Flow Report, Working Capital Dashboard

What Else Should Executives Monitor?

Cash Flow is just one part of the big picture. Executives need to monitor other aspects alongside it:

Context to Monitor	Key Questions	Read More In
Costs and Pricing	What are the actual costs? How much should prices be raised?	EP.1
Supply Chain	Can Suppliers still deliver? Need a Backup?	EP.2
Overall Strategy	What are competitors doing? What government policies help? How to plan long-term?	EP.4 Strategy

Summary — Checklist for Executives

Can Do Immediately (Today)	Can Do with ERP
Create 13-Week Cash Flow Forecast in Excel	Automated Cash Flow Projection from real data
Check Aging Report for receivables, follow up weekly	AR Module with automated alerts + Real-time Dashboard
Call to negotiate Credit Terms with Top 5 Suppliers	AP Module วางแผน Payment Schedule ตาม Cash Position
Run ABC Analysis on inventory, sell stale stock	Inventory Module calculates ABC + automated stale stock alerts
Contact bank to secure Revolving Credit facility	Financial Reports ready to submit to bank for immediate loan applications
Calculate CCC and Working Capital manually	Dashboard แสดง CCC, DSO, DIO, DPO แบบ Real-time

Businesses don't fail because of losses — they fail because they run out of cash. Executives who are prepared are those who know when cash will run out before it actually does.

- Saeree ERP Team

Read EP.4: Strategic Planning Through the Crisis — Long-term Response Plans for Executives

References

• Bank of Thailand (BOT) — Thai Economic Conditions and SME Liquidity Report
• SCB EIC — Oil Crisis Impact on Thai Economy and Exchange Rates
• Morgan Stanley — Iran Conflict: Oil Price Impacts and Working Capital Pressures
• Post Today — Thai SMEs and Liquidity Challenges Amid High Energy Costs
• InfoQuest — Urgent Measures to Address Oil Price Impact on Business Sector