What cash flow challenges lie in store as lockdown restrictions ease?

03/07/2020

As the UK lockdown continues to lift, businesses must now turn their attention to the cash flow challenges that may lie ahead and how to overcome them.

For many businesses, cash flow will have been severely depleted by the struggle of getting through the first few months of lockdown, with little or no new revenue coming in.

Government support initiatives such as the Job Retention Scheme, the ability to defer VAT payments and the various loan schemes will have gone some way to supporting those worst affected.

But this itself will bring its own challenges as some sense of normality resumes and businesses see activity and orders increase.

Here are some of the cash flow and financial challenges businesses need to be mindful of over the next few months.

Fulfilling orders on credit terms

Particularly for businesses that trade on credit terms, any increase in new orders might be difficult to fulfil with materials to buy and suppliers to pay in advance of getting paid by customers.

Especially as so many are also having to contend with longer payment times than usual, and may even be under-resourced with staff on furlough or following redundancies, it may seem almost impossible to keep up with demand in your products or services.

Overtrading or chasing turnover can be a tempting prospect to negate the damage caused by the past few months, but it’s also dangerous where cash flow isn’t strong enough to support this drive and a supportive funding facility isn’t in place.

Bringing staff off furlough

At the front of many business owners’ minds is doing what’s right for their staff. While many will be actively trying to get to a point where they can bring their staff off furlough and back to work, they will also be conscious about preserving those jobs in the long term.

With the Job Retention Scheme being wound down, with companies required to restart paying NICs and pension contributions from 1^st August and a contribution towards salaries due from September, it’s important to put a plan in place for bringing those staff back.

Without adequate cash flow, making the decision to bring staff off furlough can be daunting. But it’s a difficult balancing act as your ability to return the business to a position of strength may be difficult without them.

Unable to implement new safety measures

For many businesses, new safety measures are essential to allow work to be carried out safely and efficiently, but many of these measures may involve new equipment or software that can cost money.

While these measures are essential, they will not provide a direct financial return on investment, and when a business is already feeling the strain it can be hard to come up with the cash to cover them.

Paying off unforeseen debt

It may be that as the pandemic and lockdown snowballed, you were left with no option but to secure emergency funding to support your business.

This may have been a loan through one of the government initiatives or from another source, but there will come a time when these facilities need to start being repaid – and it might come before your business is financially ready to do so.

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

So 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 may be that other finance facilities can be used to pay them off, or at least keep cash flowing throughout the business.

Brexit

Remember Brexit? Unfortunately it seems to have been bumped down the political agenda given the severity of the coronavirus pandemic, but some fundamental issues remain unresolved.

For instance, with no trade deal secured, how might Brexit affect British businesses who import materials or export goods overseas?

Make sure you’re aware of how Brexit will affect your business and do what you can to plan for this, keeping cash flow at the front of your mind at all times.

How can funding support your business?

There are many different commercial finance options that could support your business at this time, from facilities that release cash against business assets to loans. So assessing your options and knowing which one would best support your business throughout the coming months and years can make a big difference.

An experienced broker like Hilton-Baird is a great place to turn if you are aware of cash flow challenges coming your way but aren’t sure of the best way to resolve them.

As an independent finance broker with extensive knowledge of the commercial finance market, we are able to match each business’s specific requirements with the most appropriate funding facilities and lenders.

To discover your options, give us a call on 0800 9774833 or request a call back at a time that suits you.