These are trying times for businesses around the world, the outbreak of COVID-19 has put immense pressure on the UK economy, with the Government implementing social distancing and lock down measures, the existing economic activity has almost come to a standstill, creating an unprecedented supply and demand shock.
For businesses, managing the disruption this will cause to cash flow is paramount to ensuring continuity in operations and trading. The below outlines useful tips businesses can use to mitigate damages to business during this unpredictable time.
1. Have a strong framework for managing supply chain risk
Ensuring that you understand how your business’ key trading partners, suppliers and consumers are coping with the increased financial pressure is critical to maintaining trade. Considering their ability to meet their commercial obligations to your company enables you to predict and plan for any potential disruptions.
2. Maintain your own access to financing and credit
The volatility of the environment means that you should not assume that credit and financing options that you have counted on previously will be accessible in these circumstances. Planning what your working capital needs are and what length of time they are required is a crucial step in developing a strong cash flow scenario plan to ensure trading. Using this plan, you can proactively engage with your financing partners to begin discussions into what facilities are available to you now and how they can integrate into your wider plan. If you are having difficulty with your own loan repayments – contact your finance provider early to see if they are able to offer a repayment solution. Your existing creditors have a strong incentive to back your business too, so you can both be better off and make it through together.
3. Negotiate payment terms for customers and suppliers
Engaging with your supplier and customers to negotiate alternative financing and payment strategies can mitigate the short-term stresses of reduced working capital. Opening a dialogue may present mutually beneficial terms to assist you and your trading partner, you may be able to decrease payment times to one supplier who’s in a strong position, while accelerating payment to another to provide much needed cashflow to them. During these times, the relationships you have with your partners can prove invaluable.
4. Expedite the conversion of customer orders into cash
When times are good and there is little cash flow pressure, it can be easy to let customer payment times slide. However, as supply chains become affected, managing cash flow becomes more important to operations. While your customers will be impacted by COVID-19 too, late payments can turn your positive cash position into a negative one overnight. A good tip is to focus on specific customers’ payment circumstances and identify any companies that have changed behaviour, and if necessary, engage with them to recover payment.
5. Reign in your variable costs.
If you need to reduce your cash outflows quickly, focus on reducing your variable costs rather than fixed. The common reduction levers you can use are reduction in travel, hiring freezes and restrictions on discretionary spending. One of the largest cost lines for businesses is often labour costs and managing these in a planned way can avoid the stress of future hiring processes, support employees and reduce the potential for layoffs. Consolidating your workforce by shifting workloads to permanent instead of contracted staff, along with encouraging voluntary leave or if cases become harder, involuntary leave, can significantly extend the cash runway your business has for these challenging trading times.
Maven has helped many businesses to get a handle on their cash flow, enabling them to take a proactive approach to doing business. Our MEIF Maven Finance team also provides access to funding to help businesses unlock their growth potential. Contact Maven’s local team today to find out more.
Not based in the Midlands? Maven has significant experience of managing regional growth funds across the UK, including on behalf of the Northern Powerhouse and Finance Durham, and since 2009 has invested over £340 million in more than 180 UK SMEs to support their growth strategies.
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