Cash Management: COVID-19

The Coronavirus (COVID-19) pandemic has had an unprecedented impact on the global economy. Businesses are facing uncertain times and the government has responded by announcing a series of welcome support measures. However, businesses cannot simply rely on government support and must be pro-active in navigating their way through the current situation.

There are four key areas that you must focus on in the short term.

  1. Prepare a short term daily or weekly cashflow to clearly establish your current working capital position and to identify what levers you can pull to remain within your facilities.
  2. Manage all stakeholders to the business. It is critical that you gain their support and communication is key.
  3. Once you have comfort in your short-term position, consider what medium-term funding you require to support your business post-COVID-19.
  4. Be aware of and think carefully about your director’s responsibilities and consider the implications on creditors of any decisions you make.

Short-term cashflow

It is critical that you fully appreciate and understand your current cash position and have a clear picture of your short-term funding requirement. You should maintain a simple cashflow that will quickly identify your immediate needs and can be easily flexed based on different scenarios and assumptions. To assist you we have two 13-week rolling cashflow models below which we recommend as a tool to monitor your weekly position, which allows you to clearly see the impact of cash management measures.

These cash management measures could include a combination of the following:

  • Requesting a payment holiday or temporary increase in funding facilities from your bank
  • Release of equity from part or unencumbered assets from your HP provider
  • Agreeing extended payment terms from suppliers including your landlord
  • Renegotiate customer contracts and insist on payment on delivery
  • Requesting a time to pay arrangement with HMRC
  • Consider staffing levels and impact of utilising the government’s new Job Retention Scheme
  • Consideration of deferral of payments to shareholders (dividends), directors and senior staff (bonuses)
  • Potentially deferring any other current one-off project-related costs

By maintaining this model and demonstrating that you are in control of your short-term cash position, you will be able to approach your stakeholders for support with confidence.


Managing stakeholders

All businesses have a range of stakeholders and other organisations that need to be managed during this difficult period. With the right approach, they could, in fact, hold part of the solution to your short-term issues. These could include your bank, customers, suppliers, HMRC, asset finance providers, shareholders and importantly your people. It is extremely important to communicate with them all to ensure that they completely understand your position. Getting them all on the same page is critical but will be challenging given that they may have competing interests.


Medium-term funding

The government has introduced the Coronavirus Business Interruption Loan Scheme (CBILS) as a temporary replacement of the Enterprise Finance Guarantee Scheme.

The CBILS allows businesses with turnover up to £45 million to apply for loans of up to £5 million. It may also provide an increase to your invoice finance facility. The loan will be supplied through a commercial lender with 80% of the loan being guaranteed by the government. The information that you will require to provide is likely to be the typical business plan, financial projections and historic trading results but importantly a short-term plan to see your way through the crisis. Hence identifying your short-term cash requirement and reaching an agreement with all stakeholders in advance of approaching your bank is critical. More information on the scheme can be found here.

We would stress that the loan is a commercial loan and will require to be repaid. You will, therefore, need to satisfy yourself in the first instance, and then the commercial lender, that you have a viable business proposition. We recommend that you undertake some scenario planning to demonstrate that you can service this additional debt under various scenarios.


Restructuring and director’s responsibilities

Inevitably difficult decisions will require to be made and this may involve redundancies and an element of restructuring. If you consider that your business cannot meet its debts as they fall due, as directors you need to be very careful when making decisions. Your responsibilities switch from being to your shareholders to your creditors and it is important that you do not put your creditors in a worse position through your actions. You must, therefore, be aware of the impact that your decisions will have on individual creditors and take appropriate advice if in doubt.


Get in touch

If you have any queries in relation to the above issues and would like a confidential discussion with our team of specialists please contact:

Rod Mathers

E: rod.mathers@hlca.co.uk

M: 07795 826008


Shona Campbell

E: shona.campbell@hlca.co.uk

M: 07808 294165