Cash Management During COVID-19

The COVID-19 outbreak has already had a huge impact on our lives.  It is also having a massive impact on businesses.  This morning’s headlines include the BBC reporting research showing “a fifth of smaller UK firms will run out of cash” in the next four weeks, in spite of unparalleled Government support.

Alongside this, the UN Secretary General has noted this is the “biggest challenge for the world since World War Two” and it could bring a recession “that probably has no parallel in the recent past”.   We are seeing businesses which didn’t even shut during the World War having to close operations down for the foreseeable future.

Here we have summarised the current Government initiatives, along with tips for managing cash in the current situation.

1. Prepare a 13 week cash forecast

It’s been a recurring theme in our recent articles but you must start by preparing a 13 week rolling cash forecast (see our earlier article on preparing a cash forecast)– ideally after the initial period you can then include a monthly forecast to the end of the year. This will help identify the pinch points in both the short and medium term.

2. Government support

The Government has announced numerous initiatives to support businesses which are well documented but these are taking time to become fully operational.  Further details can be found at https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-through-the-coronavirus-job-retention-scheme.

These include:

Coronavirus Business Interruption Loan Scheme (“CBILS”) british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/ and we also provided tips on how to apply in our article.

HMRC VAT and PAYE deferrals: an automatic deferral of all VAT payments is available in the coming months and there is a dedicated helpline for PAYE and other Time to Pay Arrangements on 0800 0159 559. Provide details of what you want to defer and for how long – share your cash forecast if necessary.

Coronavirus Job Retention Scheme: The HMRC portal to claim 80% of furloughed employees’ wages (up to £2,500) is expected to be live later in April and should follow here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

– There are also specific initiatives for retail, hospitality, leisure and nursery businesses.

3. Rent and Business Rates

Contact your landlord(s) and Local Government to discuss the potential for rent and business rate holidays.  While the landlord does not legally have to provide a rent holiday the Government has said commercial tenants who cannot pay their rent because of COVID-19 will be protected from eviction, if they miss a payment up until 30 June 2020.  There are also specific rate reliefs for hospitality and leisure businesses.

4. Creditors and the supply chain

Seek to agree deferrals and payment plans with creditors on a consensual basis and prioritise those critical suppliers and those that will generate cash for the business in the short term.  In extreme cases and in the short term you may need to justify every payment based on how much cash it brings in for the business.  The Government has temporarily relaxed the rules surrounding ‘wrongful trading’ but seek legal advice if you are unsure about what can and can’t be done.

5. Debtor receipts

Prioritise your larger debtors and contact them in advance of payment dates to ensure they are planning to pay as usual, or agree payment plans.  Communicate with your existing customers to ensure you understand how the COVID-19 outbreak has impacted their business and therefore their orders to reflect this in your forecast.  Also, consider how you can target new customers which may now need your product/service in the current situation.

6. Leased assets

Contact all your lease providers to see if you can agree a rent holiday.  Three month holidays are typically being offered.  If you have company cars not being used, review your HP agreement to see if you can return the vehicle early.  However, be careful to ensure that withholding payment does not result in additional fines, damages and other claims which could be higher than the rent payment itself.

7. Purchasing processes

Review your purchasing processes and policies to remove the ability for staff to make small purchases and ensure all purchase orders go through a member of the senior management team to ensure any orders are business critical at this time.  Cancel all company credit cards and fuel cards if they are not being used.

8. Cutting costs

Review all your costs and consider where cuts could be made, even cuts you don’t want to make at this time e.g. staff redundancies.  Prioritise them by rating them red, amber and green:

Green – easy wins that will not impact the business as normal (e.g. no office cleaning while the office is empty);

Amber – cuts which will damage goodwill in the supply chain / local community in the short term (e.g. not paying some local suppliers if they are not business critical); and

Red – cuts which are the last resort and could impact the business in the longer term (e.g. not paying staff and key suppliers).

Review the need to undertake some of these reductions on a regular basis.  You will hopefully never have to make the cuts however it’s better to be prepared for all possibilities.   However, when it comes to cutting costs, it’s typically better to cut deep and cut early.  The sooner you act the better and you only want to have to go through the process once.

9. Seek external support

Employment law is a minefield – make sure you are well advised on any redundancy or furlough process.  Seek any legal advice now on contracts and HP agreements to ensure when the time comes you can implement changes swiftly if cash is required.

We are happy to offer some free advice and guidance over the phone for anyone who has concerns about their business. Please do not hesitate to contact us.

And most importantly – stay safe.