Keep the cash flowing

19 Apr 2021

Despite access to unprecedented Government support in the form of tax reliefs, the furlough scheme and loans, some 68% of UK SMEs reported a negative impact on cash-flow as a result of the COVID-19 pandemic, according to the latest research undertaken by online SME funding platform CapitalBox[1].  This makes for sobering reading, particularly when considered alongside the findings of a recent survey by the British Chamber of Commerce, which suggests that around one-quarter of firms (23%), and almost one-third of B2C businesses, do not have sufficient cash to survive for more than three months[2].

If the last year has taught us anything, it’s that no-one knows what the future holds. Although there is now (hopefully!) some light at the end of the tunnel, many businesses face trading in dramatically different conditions for at least the time being, and may need to rely on Government help for some time to come; according to the BCC survey, almost 48% of B2C businesses reported still having staff on furlough.

The CapitalBox research identifies some of the measures taken by businesses to cut costs, which include reducing staff hours (26%), cutting staff pay (25%), scaling back office perks (25%), and reducing office space overheads (20%).

Successful cash-flow management is not just about cutting costs or generating more sales (sales do not necessarily guarantee money in the bank). It is multi-faceted and one key component that is often overlooked is billing and collection. However, focusing on billing and collection can be an “easy win” in terms of both generating cash and reducing risk.

Firstly, look at your billing processes – is there room for improvement? For example, are invoices generated promptly (the sooner you invoice, the sooner you can expect to receive payment)? How robust are your monitoring processes? Knowing when payment is due can be crucial to managing cash-flow and debt. Effective monitoring can also identify problems at an early stage and potentially allow steps to be taken to address those, for example, by suspending supply to avoid extending unnecessary credit.

Secondly, consider the processes you have in place in the event of late payment – sometimes an invoice will simply have fallen to the bottom of the pile, and a gentle “nudge” can be all that’s needed to encourage payment. Early intervention may also enable you to identify where late payment is caused by something more endemic.

Finally, take some time to familiarise yourself with your terms of business - are they still fit for purpose? It may be, for example, that your business has evolved since the terms were drafted, or that your terms no longer dove-tail effectively with your suppliers’ terms. Consider what happens in the event of late payment – for example, would this entitle you to withhold goods or services, charge interest or terminate the contract? Ensure that you are familiar with what you can do and when, to allow you to take prompt action as necessary.


Further reading

DMH Stallard LLP acts for Chill Brands Group plc in completing its fundraisings

DMH Stallard was legal adviser to Chill Brands Group plc on the fundraisings and publication of the prospectus and liaised with the Financial Conduct Authority. The DMH Stallard team was led by Nick Williams and included Georgina Thomas, Amber Monaghan and Claire Baker.
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