Covid-19 pandemic has badly affected my company's cashflow - what can I do?
Coronavirus has caused serious cashflow problems for many with businesses unable to trade as normal or suspending operations completely. Ensuring there’s enough cash available to pay the bills is certainly challenging.
The time lag between completing work and receiving payment can be considerable but generally manageable under normal trading conditions, but if there’s little prospect of new work and business debtors are retaining cash so they too can survive the situation can become dire.
Where a business is unable to pay its bills as they fall due it is deemed insolvent and this is a current real threat for many businesses. So what can you do to improve cash flow and prevent a rapid decline towards closure?
Negotiate with creditors
Many businesses are experiencing severe business cashflow problems and your creditors may be open to an informal repayment plan over the next few months. If you can negotiate an affordable amount, however small, it demonstrates your willingness to pay and may prevent creditor pressure from escalating.
It’s advisable to conduct negotiations by phone if possible rather than by email or in writing but if you manage to reach agreement confirming the details by letter would offer clarity and peace of mind.
Do you have tax arrears? If so you could consider HMRC’s Time to Pay arrangement. HMRC widened access to their Time to Pay scheme to help businesses in financial distress as a result of COVID-19. The Time to Pay arrangement (or TTP) grants extra time to pay tax bills sometimes for up to 12 months.
HMRC has been vocal in their wishes to support businesses during this time but the fact remains you will need to prepare a solid business case when applying demonstrating how your business will pay the instalments for the full term of the arrangement.
Government loan schemes
The Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) are government initiatives intended to support business cash flow that has been compromised by the coronavirus pandemic.
- CBILS offers small and medium sized enterprises access to government backed loans (80%) of up to £5 million, with the government paying the interest and lender fees/charges for 12 months.
- BBLS is open to any size of business, but is specifically aimed at sole traders and small enterprises with up to 10 members of staff. The government is backing 100% of these loans, and the maximum amount available to eligible businesses is £50,000.
As with the HMRC Time to Pay agreement mentioned above you will need to accurately forecast your cash in the coming months before applying, including any rent and tax payments that may have been deferred under other government initiatives as these represent significant outgoings when they become due.
Alternative funding
If you aren’t able to secure a government-backed loan or feel that other types of funding could be more suitable it’s worth considering alternative lenders that may be able to offer more tailored solutions.
Maybe you run a high value sales ledger, for example? If so invoice factoring or discounting could be appropriate. This type of finance offers regular cash payments based on the value of your invoices so funding grows along with your sales in the future. Alternatively, you may own assets that could be sold outright to a third party to generate cash or used as part of a sale and lease back arrangement to provide a cash lump sum.
Alternative borrowing generally involves less paperwork and administration on application than bank loans and can be flexible sources of working capital during the coronavirus pandemic and beyond.
Professional advice and support
Seeking professional insolvency advice is likely to be a key factor in the survival for many businesses under these challenging circumstances and offers directors and business owners practical help as well as valuable moral support.
If creditors are threatening to take legal action, two rescue measures in particular could help if you’re eligible:
- Company Voluntary Arrangement (CVA) - a CVA is a formal agreement that restructures your debts and is legally binding on all parties – this protects you from creditors who may intend to wind up your business.
- Company administration - entering company administration also offers protection from creditors, but this time via a moratorium period of eight weeks during which the appointed insolvency practitioner develops a rescue plan.
If closure is the only option however Creditors’ Voluntary Liquidation (CVL) ensures the business is closed down in an orderly manner and offers directors the chance to claim redundancy pay and other statutory entitlements.
If you would like more information on dealing with your cashflow during the pandemic call 0800 331 7417
