Coronavirus: The importance of cash flow management

Cash flow is vital for the survival of every business and is a key focus during normal trading conditions.

Now, however, as business operations are disrupted by the coronavirus outbreak causing some businesses to close their doors and others to adopt new ways of working, finding ways to manage cash flow has never been more important.

We consider the steps your business can take to help manage cash flow.

Payment terms

Establishing clear payment terms from the outset is crucial. If payment terms are not agreed, you do not know when you are going to be paid, it will be difficult to manage cash flow and you may face difficulties pursuing a debt.

If you do not have a set of terms and conditions, now may be the time to invest. Terms and conditions can set out payment dates, interest provisions and the consequences of non-payment.

Invoicing

Accurate and timely invoicing is crucial for cash flow management; if invoices are raised late or are incorrect this can lead to delayed payments which ultimately will affect cash flow.

Where possible, you should obtain a deposit or payment upfront from to increase capital and eliminate the risk of non-payment.

Invoices should be sent via email (as far as possible) to ensure that they are delivered immediately and to encourage quick payment. This is more important now than ever with businesses working from home and not having immediate access to post.

We would also recommend that you avoid accepting cheques as this will delay payment and will require a trip to the bank which may not be possible and in any event should be avoided in line with the government’s coronavirus guidance.

Debt Recovery

If an invoice has not been paid and is overdue, you should take steps to chase it. However, be mindful that your debtor may also be dealing with its own cash flow issues.

If your debtor cannot pay an invoice in full on time, consider agreeing on a suitable payment plan and recording this in writing. Some cash recovered is better than none and will help to regulate your cash flow.

If payment is refused and you are unable to reach an agreement with a debtor, Ashtons Legal is here to help. We recognise that recovering unpaid invoices can be a frustrating and time-consuming exercise for any business but that it is vital you are paid for the goods and/or services you provide. We, therefore, provide a fixed fee debt recovery service helping clients to recover sums owed.

We also work closely with Escalate Disputes to resolve commercial disputes with no upfront costs to your business.

There are a number of options available to you before writing off a debt. Please contact us for more information.

Creditors

If your business is unable to pay its debts make sure you keep your creditors informed. Silence may force a creditor to take legal action against you to recover sums owed and puts your business at risk of insolvency.

Where possible, negotiate payment plans with creditors to spread repayments over time. This will preserve capital and should protect your business relationship for the future survival and success of your business.

Government Support

To cope in these unprecedented times, the government has announced a number of measures to support businesses through the coronavirus pandemic which include:

• the Coronavirus Business Interruption Loan Scheme – supports SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years
• the COVID Corporate Financing Facility – the Bank of England will buy short term debt from larger companies
• Job Retention Scheme – the government has agreed to pay 80% of a furloughed employee’s salary (up to £2,500 per month per employee). This will reduce fixed costs without forcing employers to make redundancies
• VAT deferral – businesses can defer paying VAT until 30.06.2020. There is no need to apply for this, the deferral will be automatic. Businesses should cancel their direct debit to take advantage of this
• the Time To Pay service – businesses can contact HMRC to negotiate payment terms for tax and related penalty payments
• Business Rate Holiday – retail, hospitality and leisure businesses and nurseries in England will not have to pay business rates for the 2020/21 tax year.

For further information about government support please visit the Gov.uk website.

We Can Help You

If you need help recovering bad debts, please get in touch with our specialist Debt Recovery team through this website or by calling 0330 404 0737.