Liquidity Planning in a Crisis: Securing Cash Flow

In economically strained times, it is not profitability that determines a company's survival but liquidity. Companies that are profitable on paper can become insolvent if cash inflows and outflows are not synchronised. Conversely, businesses with operating losses can buy the time needed to initiate a viable restructuring through consistent liquidity management. Cash flow is the lifeblood of every company -- and managing it is the most critical leadership task in a crisis.

The 13-Week Cash Flow Forecast as the Central Steering Instrument

The centrepiece of any crisis liquidity plan is the rolling 13-week plan. This planning horizon has established itself as the standard in practice because it covers the insolvency-relevant time frame on the one hand and provides a sufficiently detailed view of short-term solvency on the other.

Structure of the 13-week plan:

Cash inflows: Customer payments, other revenues, tax refunds, expected financing inflows
Cash outflows: Supplier invoices, wages and salaries, social security contributions, taxes, rent, lease payments, interest and principal repayments, other fixed costs
Weekly balance: Difference between inflows and outflows
Cumulative balance: Development of the account balance taking into account the opening balance and available credit lines

The plan is updated weekly, with the elapsed week replaced by an actual-to-plan comparison and a new planning week appended at the end. Variances between plan and actual are systematically analysed and planning assumptions adjusted accordingly.

Identifying and Stopping Cash Drains

In a crisis, you must analyse ruthlessly where the cash is going. Common cash drains include:

Excessive inventory levels: Capital tied up in raw materials, work in progress, and finished goods is not available for payments.
Extended customer payment terms: Generous payment terms of 60 or 90 days effectively finance your customers at the expense of your own liquidity.
Unprofitable projects or contracts: Orders that tie up liquidity without generating an adequate margin exacerbate the crisis.
Non-essential expenditures: Sponsorship contracts, consulting fees without immediate benefit, oversized office space.

Setting Payment Priorities

When liquidity is insufficient to cover all liabilities, payment priorities must be set. This decision has legal, operational, and strategic dimensions:

Highest priority:

Wages and salaries (employee protection, maintaining operations)
Social security contributions (personal liability of management for non-payment, § 266a StGB)
Payroll tax (liability under § 69 AO)

High priority:

Suppliers essential to maintaining business operations
Energy supply and telecommunications
Insurance premiums for existential risks

Lower priority (with negotiation potential):

Suppliers with alternative sourcing options
Landlords (observe termination protection periods)
Loan repayments to banks (negotiate repayment deferrals)

Negotiations with Creditors: Standstill Agreements

Open and proactive communication with creditors is critical. A professionally prepared standstill agreement includes:

Presentation of the situation: Transparent overview of the economic position
Standstill period: Specific identification of the requested period (typically 3 to 6 months)
Repayment schedule: Binding plan for repaying the deferred amounts
Consideration: Such as provision of security, reporting obligations, compliance with covenants
Termination clauses: Circumstances under which the standstill may be revoked

Practical tip: Prepare a uniform information package for all material creditors. Uncoordinated individual negotiations typically yield worse outcomes and can trigger panic.

Working Capital Optimisation

Optimising working capital is the most effective lever for short-term liquidity improvement:

Receivables management:

Shorten payment terms to 14 days net
Introduce or increase early payment discounts (e.g. 2% for payment within 7 days)
Rigorous dunning process with clear escalation levels
Credit checks on new customers before order acceptance
Invoice partial deliveries instead of final invoices

Inventory optimisation:

ABC analysis of inventory and reduction of C-items
Reduce safety stock to the operationally necessary minimum
Negotiate consignment stock arrangements with suppliers
Just-in-time delivery where possible

Payables management:

Utilise agreed payment terms in full (no early payment)
Negotiate extended payment terms with suppliers
Use framework agreements with flexible call-off quantities

Financing Instruments in a Crisis

In addition to internal liquidity optimisation, external instruments can generate short-term liquidity:

Factoring: Selling receivables to a factor provides immediate liquidity (typically 80 to 90% of the receivable amount) and transfers the default risk.
Sale and leaseback: Operationally necessary fixed assets are sold and leased back. Liquidity flows immediately; use is retained.
Credit lines: Check whether existing lines have not yet been fully drawn or can be extended at short notice.
Shareholder loans: In a crisis, frequently structured as subordinated loans to avoid over-indebtedness issues.
Guarantee banks: In many federal states, guarantee banks can secure existing or new credit lines, thereby increasing the house bank's willingness to lend.
Silent participations: Capital providers contribute equity without obtaining operational co-determination rights. This instrument can strengthen the equity ratio and create additional negotiating leverage with banks.

Important: Each financing instrument has specific prerequisites and risks. Factoring, for example, requires receivables that are valuable and assignable, while sale and leaseback only works if the assets are owned by the company and are not already pledged as security. Seek expert advice before using these instruments to avoid unintended insolvency law consequences -- such as the voidability of legal acts under §§ 129 ff. InsO.

Over-indebtedness as a Second Insolvency Trigger

In addition to inability to pay debts, over-indebtedness (§ 19 InsO) is an independent insolvency trigger that is frequently underestimated in crisis planning. Over-indebtedness exists where the debtor's assets no longer cover the existing liabilities -- unless the continuation of the business is more likely than not based on the circumstances (positive going-concern forecast).

Key factors for the going-concern forecast:

A coherent restructuring concept (ideally in accordance with IDW S 6)
The willingness of the key stakeholders (banks, shareholders, suppliers) to participate
The plausibility of the underlying planning assumptions
Financing coverage for the planning period (typically 12 to 24 months)

The deadline for filing in cases of over-indebtedness is six weeks. During this period, management must either eliminate the over-indebtedness or file for insolvency. The personal liability of management for breach of the filing obligation (§ 15a Abs. 4 InsO) makes a careful and documented assessment imperative.

Keeping Insolvency Triggers in View: § 15a InsO

Management is legally obliged to file for insolvency without culpable delay -- at the latest within three weeks in the case of inability to pay debts or six weeks in the case of over-indebtedness -- when insolvency grounds exist.

Inability to pay debts (§ 17 InsO) exists where the company is unable to meet its due payment obligations. The case law of the BGH has developed a liquidity balance sheet for this purpose: where more than 10% of due liabilities cannot be settled within three weeks, inability to pay is presumed.

Early warning indicators (KPIs) that you should monitor:

Quick ratio: Liquid assets / current liabilities (critical below 20%)
Cash burn rate: How many weeks does the existing liquidity last at the current rate of consumption?
Days sales outstanding (DSO): Is your customers' payment behaviour deteriorating?
Days payable outstanding (DPO): Are you becoming an involuntary creditor to your suppliers?
Credit line utilisation: How much headroom remains on your bank lines?

The Role of Interim Management

In acute crisis situations, engaging an experienced interim manager for liquidity management can bring decisive advantages:

Objective perspective: No operational blindness, no historical entanglements
Experience: Proven methods from comparable crisis situations
Speed: Immediate capacity to act without onboarding time
Credibility: An interim manager signals professionalism and willingness to change to banks and creditors

Practical Template: Structure of a Liquidity Plan

A practical 13-week plan should have the following structure:

Header: Company, planning date, responsible person, version number
Inflows section: Differentiated by customer segment or business division
Outflows section: Grouped by priority level (see above)
Weekly balance line: With traffic light system (Green / Amber / Red)
Cumulative balance: Taking into account opening balance and credit lines
Comments field: For explanations of material items and variances

Conclusion

Liquidity planning in a crisis is not a purely technical exercise but a leadership task that requires determination, transparency, and negotiating skill. The 13-week plan is your most important tool -- it creates clarity, enables informed decisions, and documents your diligence vis-à-vis creditors and courts. Those who act early create the room for manoeuvre that a successful restructuring requires. The team at compleneo supports you in preparing and maintaining your liquidity plan, in creditor negotiations, and in developing viable restructuring concepts -- so that a crisis can become an opportunity.