In these unprecedented times, the impact of the Coronavirus will inevitably cause financial uncertainty, and place significant pressure on many businesses and individuals on a global scale.
To help support our clients during this critical period, we recommend that you remain mindful of the following:
- Monitor cash flow and regularly update cash flow forecasts to understand peaks and troughs
- Ensure ‘tight’ credit control is undertaken – deal with any queries or disputes early in respect of invoices, and try and obtain payment of any undisputed element to aid cash flow
- Consider and reduce variable costs, like travel, meetings, hiring of staff and customer entertainment to maximise cash
- Offer customers small discounts if they pay earlier than the contracted terms
- Consider asking customers to pay on account during a service or supply, to try and assist cash flow and mitigate the risk of bad debts crystallising, if they become insolvent mid supply
- Consider placing ‘problematic customers’ on pro forma / cash on delivery to avoid later problems concerning cash collection, or a bad debt, if they become insolvent mid supply
- You should consider issuing a lien over customer’s stocks that you hold in warehouses, or on transport, to facilitate payment of invoices, if you are embroiled in disputes, or have a fear that insolvency is around the corner
- Avoid incurring unnecessary credit / stock building, and evaluate purchases that are deemed necessary, and other non-essential services that can be curtailed, in the short to medium term, to protect cash
- Ensure that creditors are paid within their credit terms, however, should debtor receipts be delayed, ensure creditor payments are delayed also – to ensure matching and aid cash-flow
- Creditors can be asked to support your business, in allowing balances to be paid over an agreed period of time
- Ensure the Bank is kept appraised of the business’s situation and cash / working capital requirements, and that the business has the ability to operate within its agreed facilities
- Banks / funders may be willing to provide short term loans to assist businesses, but Directors need to be mindful of providing a personal guarantee, and their subsequent exposure if the company fails
- Invoice financiers may be prepared to increase the funding / draw-down rate, in the short to medium term, to assist with cash flow requirements
- Consider selling surplus assets to raise cash
- HP / loan / finance creditors – businesses should inform these creditors of its potential problems in maintaining payments, and can request payment holidays, if cash is tight for a short period, however be mindful of contractual penalties that could be applied, or equity that passes to the creditor on the cessation of the agreement, due to the ‘default’
- Directors should prepare board minutes on decisions made, to substantiate actions and strategy, and to assist if these decisions are called into question at a later date if the company fails
- If Directors are considering injecting further personal funds, to assist with working capital, consider taking security by way of a debenture, to protect these funds in the event of the company’s failure
- Employees – seek advice surrounding your obligations and options surrounding employees to assist you in complying with the law, however there are options available like lay off days, requirement to take holidays and short time working
- Understand the terms of your Business Interruption Insurance, if applicable
If you suffer from a bad debt, do your terms and conditions of trade contain retention of title clauses, whereby you can attend site and obtain stocks supplied that haven’t been paid for? We can assist with such claims against companies and their Insolvency Practitioners.
If you suffer a bad debt and the business goes into a formal insolvency process, it is crucial that you provide us with necessary paperwork that has been sent to you urgently, as we can assist you in submitting a claim.
The Government has provided details of a dedicated Coronavirus helpline, to support businesses, and those who are self-employed and may be struggling to pay their tax, offering the option to defer payments over an agreed period of time, or temporarily suspending debt collection proceedings depending on individual circumstances. More information can be found here.
We strongly advise that clients seek professional advice as soon as practically possible to maximise options. Here at Smith Cooper, we will ensure that you are provided with the best advice immediately on an initial no cost basis whilst we consider further options and the most suitable strategy to suit your needs. If you have any queries or concerns, please do not hesitate to get in touch.