- 08 Apr
Are Companies Going To Run Out Of Cash This Month?
Are UK companies about to start running out of cash at the end of this month?
Now is a critical time for many UK companies. Since the onset of the coronavirus outbreak, and the various lockdown related measures to control it spread, businesses have started to feel the impact on their revenue, workforce and suppliers.
Large Order Finance
Whilst we have seen some UK companies need finance to benefit from large orders in support of the Government's efforts to combat the spread of the virus, many others have started to struggle, as orders have been reduced or they have been forced to shut up shop completely.
Some reports suggest that UK output may have plunged by some 30% amid the current crisis, a catastrophic impact on the UK economy.
CBILS And Other Measures
The government launched their CBILS scheme (Coronavirus Business Interruption Loan Scheme), although this only achieved a 0.8% loan approval rate in its first week since its launch.
Whilst the Government have taken further steps to address this, many remain sceptical as to how much have a contribution it will make to kickstarting the UK economy. Some businesses are understandably cautious about taking on more debt, that will need to be repaid. Revolving forms of credit, such as invoice finance, may be considered more attractive options as they only allow you to access cash that you are already due.
There are other measures, such as deferment of the payment of VAT and self assessment tax, which may have alleviated some cash flow pressures in the short term. However, this is not an endless pot of cash, and businesses need to be mindful that it will still need to be paid to HMRC in the future.
Running Out Of Cash This Month?
We are conscious of a mindset amongst some businesses of "waiting to see what happens". We are approaching a point now where towards the end of April 2020, many businesses will start to see the reduction in trade hitting their revenue. It is highly likely that the end of April 2020 will be a crunch point for many companies as they start to run out of cash. Once they are in that position, they will look much less attractive to funders.
Many of the rescue measures, such as payments to the self-employed and payments in respect of furloughed staff, are unlikely to be received until sometime after this period. This will mean that many companies will face critical cash flow problems at the end of this month.
Maximise Your Cash Flow Now
Common sense would suggest that companies need to be projecting forward their cash flow forecast, and taking steps to put in place the funding and finance required to ensure their survival.
Companies that have invoices owed to them can accelerate their cash flow by discounting those invoices with an invoice finance company. This will release a significant proportion of the value of those invoices immediately, accelerating their cash flow. This is money the company was already due, it is just being received sooner - an alternative to having to repay a debt, such as a loan, over many years.
Whilst there are selective invoice finance facilities available, that will allow a company to temporarily access this type of funding, and ongoing whole turnover facility will continue to speed up the receipt of cash into a business on an ongoing basis. You will no longer have to wait for customers to pay.
Logic that suggests that a company applying for facilities, such as invoice finance, at this point is more likely to be successful, rather than at a point when payments from debtors have started to slow down and the cash flow crunch has really started to bite. They are far more likely to be provided a facility at a point where they are not yet on the critical list. There are alternative options, if you act now.