The cash flow challenges lying around the corner

09/02/2021

With repayments on the various Government-led loan schemes due to commence soon, businesses which have benefited from them should be considering the impact this may have on cash flow and how to overcome any challenges that may lie ahead.

As at 24 January, more than 200,000 businesses have applied for funding through the Coronavirus Business Interruption Loan Scheme (CBILS), accessing more than £20 billion.

As well as this, almost 2 million businesses have applied for a loan through the Bounce Back Loan Scheme (BBLS), which has seen close to £45 billion approved.

These numbers are arguably the only reason some businesses are still trading and able to hope for a return to some sense of normality – whatever that may be.

But it’s not long now until these facilities need to start being repaid – and it might come before many are financially ready to do so.

The same is true for businesses who have deferred VAT payments. The risk here is that, when they fall due, many will lack the cash flow to pay on time.

So, here we provide some tips on how to prepare your business for making these repayments, forecast your cash flow and give your business the best chance of success.

1. Plan ahead

Don’t wait until the cash flow pressure starts to build to think about your next steps. Be proactive now and start thinking about your forthcoming working capital needs.

Make sure you know when repayments will begin, how much they’ll be, and act early to ensure the required cash is available to make them on time.

It’s the steps taken now that will determine the survival of individual businesses and ultimately the recovery of the economy.

2. Focus on cash flow

One of the biggest challenges facing businesses currently is that the future is still so unclear. We still have no idea of when lockdown restrictions will be eased or lifted and how long the process will take before conditions can return to anything close to normal – and what the new normal will be.

This can make managing your cash flow challenging. But it’s also why focusing on your cash flow is so important right now.

Here are three ways to focus on your cash flow:

Regularly update your cash flow forecasts

Your cash flow forecasts will provide an instant indication of any upcoming cash flow problems. But, to successfully spot any potential cash flow shortages, your forecast needs to be as accurate as possible.

You can achieve this by regularly updating your figures with anything that could impact your cash flow.

For example, all late payments or price increases should be accounted for as soon as you are aware of them.

Forecast for multiple scenarios

Cash flow forecasting is essentially predicting what will be coming in and going out of your business at any time.

Whilst we’re in the middle of a pandemic this is even more challenging than normal.

But it is possible to counteract this uncertainty by forecasting for multiple scenarios.

You can get an indication of the best and worst case outcomes by taking an educated guess at a base scenario and then creating one scenario with a percentage of higher sales and another with a percentage lower.

You might also want to forecast for potential risks such as:

• Impact of extended lockdown
• Impact of key customers not able to pay outstanding invoices
• Impact of changes to sales pipelines and demand
• Impact of supply chain disruption (your ability to meet existing orders and to get paid)

Be cautious

Remember that this global pandemic will affect most businesses in one way or another. This means that you can’t confidently rely on any of your customers to make payments on time, or even at all.

It also means that you should be continually checking in with your customers and supply chain. Being able to identify issues with payments early and having open conversations will give you the best chance of protecting your cash flow.

Against this backdrop, you might want to consider credit insurance, which protects your cash flow if customers in the supply chain don’t pay, whether due to insolvency or protracted default.

The Government has extended its Trade Credit Reinsurance Scheme until 30th June 2021 so that trade credit insurance coverage and credit limits are maintained during the pandemic.

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Further reading:

• Guide to cash flow forecasting
• How to spot a cash flow shortage before it happens
• Should you refinance your Bounce Back or CBILS loan?

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3. Consider all your finance options

The good news is that, if you need a cash flow boost, support is still available.

Firstly, businesses that took out government-backed Bounce Back Loans to get through Covid-19 now have access to greater flexibility to repay their loans.

Pay as You Grow’s additional support, first announced by the Chancellor in September, will give borrowers the option to tailor repayments to their individual circumstances.

It will provide businesses with the following options:

• Extend the length of the loan from six years to ten
• Make interest-only payments for six months, with the option to use this up to three times throughout the loan
• Pause repayments entirely for up to six months

However, whilst this will provide many businesses with more time and greater flexibility to repay the loans, it might not be the best solution for all. Some businesses could find that this just pushes the cash flow challenges further down the line, whilst others might not have access to this help at all.

Instead, it may be that other finance facilities are more suitable to provide support over the short, medium and long term, rather than granting a short-term fix.

So, assessing your options and knowing which one would best support your business throughout the coming months and years can make a big difference.

Invoice finance, for example, provides flexible access to working capital through times of growth and has been proven to support businesses in a fragile and recovering environment.

As well as providing access to working capital, there are many added features which can be incorporated into invoice finance facilities, such as sales ledger management and bad debt protection which provide additional support to businesses in these challenging times.

You should treat the exercise of looking for financial support for your business as you would at any other time, by reviewing all the options and making the choice that will give your business the most benefit.

When doing this, focus on suitability rather than convenience and cost, as the easy option isn’t always the most beneficial in the long term.

4. Talk to an expert

If you are concerned about your cash flow or confused about your finance options, don’t forget that help is still available.

Having discussions as early as possible with the appropriate financial services will give you the best chance of securing the support you need.

As an independent, FCA-regulated commercial finance broker we specialise in helping businesses find the right funding solution, and at a time when many people are confused and nervous about the future, our services could be the support you’re looking for.

If you’re searching for new funding for your business or looking to review any existing facilities, we can help.

To speak to our expert team, call 0800 9774833 or request a call back at a convenient time here.