Suffering serious business cash flow problems because of coronavirus – what can I do?

Has the COVID-19 pandemic affected your company's cash flow?

Coronavirus has caused serious business cash flow problems industry-wide, and with businesses unable to trade as normal or suspending operations completely, making sure there’s enough cash available to pay the bills is certainly challenging.

The time lag between completing work and receiving payment can be considerable but generally manageable under normal trading conditions, but when there’s little prospect of new work and business debtors are retaining cash so they too can survive, the situation is dire.

Cash flow insolvency, where a business is unable to pay its bills as they fall due, is a real threat for many, so what can you do to improve cash flow and prevent a rapid decline towards closure?

Negotiate with creditors

Many organisations are experiencing severe business cash flow problems and your creditors may be open to an informal repayment plan over the next few months. If you can negotiate an affordable amount, however small, it demonstrates your willingness to pay and may prevent creditor pressure from escalating.

It’s advisable to conduct negotiations by phone if possible rather than by email or in writing, but if you manage to reach agreement, confirming the details by letter would offer clarity and peace of mind.

Do you have tax arrears? Consider HMRC’s Time to Pay arrangement

HMRC has widened access to their Time to Pay scheme to help businesses in financial trouble due to COVID-19. The Time to Pay arrangement, or TTP, grants extra time to pay tax bills, sometimes for up to 12 months.

The tax body has been vocal in their wishes to support businesses during this time, but the fact remains that you’ll need to prepare a solid business case when applying, demonstrating how your business will pay the instalments for the full term of the arrangement.

Government loan schemes

The Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) are government initiatives intended to support business cash flow that has been compromised by the coronavirus pandemic.

As with the HMRC Time to Pay agreement mentioned above, you’ll need to accurately forecast your cash needs in the coming months before applying, including any rent and tax payments that may have been deferred under other government initiatives, as these represent significant outgoings when they become due.

Alternative funding

If you aren’t able to secure a government-backed loan or feel that other types of funding could be more suitable, it’s worth considering alternative lenders that may be able to offer more tailored solutions.

Maybe you run a high value sales ledger, for example? If so, invoice factoring or discounting could be appropriate. This type of finance offers regular cash payments based on the value of your invoices, so funding grows along with your sales in the future. Alternatively, you may own assets that could be sold outright to a third party to generate cash, or used as part of a sale and lease back arrangement to provide a cash lump sum.

Alternative borrowing generally involves less paperwork and administration on application than bank loans, and can be flexible sources of working capital during the coronavirus pandemic and beyond. 

Professional support and protective insolvency measures

Professional insolvency support is likely to be a key factor in survival for many businesses under these challenging circumstances, and offers directors and business owners practical help as well as valuable moral support.

If creditors are threatening to take legal action, two rescue measures in particular could help if you’re eligible:

Company Voluntary Arrangement (CVA)

A CVA is a formal agreement that restructures your debts and is legally binding on all parties – this protects you from creditors who may intend to wind up your business.

Company administration

Entering company administration also offers protection from creditors, but this time via a moratorium period of eight weeks during which the appointed insolvency practitioner develops a rescue plan.

If closure is the only option, however, Creditors’ Voluntary Liquidation (CVL) ensures the business is closed down in an orderly manner, and offers eligible directors the chance to claim redundancy pay and other statutory entitlements.

If you would like more information on dealing with your cash flow during the pandemic and after the immediate crisis has passed, please call one of our expert team at Real Business Rescue. We offer free same-day consultations in complete confidence.