We’ve talked before about the impact that Covid-19 has had in exacerbating the late payment epidemic that’s been blighting SMEs for years. Find out what we had to say about responding to the most typical reasons for non-payment here.
With England back into lockdown and no real end in sight for beleaguered businesses, we wanted to take a look at what SMEs need to be doing now to ensure they’re still here in six months time. And yes, things are that serious. Before you accuse us of being over-dramatic.
Sitting on your hands simply isn’t an option for SMEs at the moment. Those businesses who take action are the ones who will come through this period (relatively) unscathed. We’re splitting our advice into three key areas you need to consider for the health of your business.
1. What support is available?
Let’s start with some changes in legislation which can work in your favour.
At present, and until 1 January 2021, there are restrictions on winding-up petitions and statutory demands which may take some of the pressure off when it comes to unpaid bills. If cash flow is tight then now is the time to move into a ‘critical payment situation’ - that is to analyse weekly what absolutely needs to be paid in order for the company to keep going, and then contact other creditors to negotiate payment plans that spread things out over longer periods of time.
The announcement that any VAT deferred from March through to June can now be spread across 11 monthly payments is good news for those SMEs who were looking nervously at 31st March 2021. The added bonus is that this can all be done on the HMRC website with no need for complicated agreements. Business owners can also defer their personal tax liability, so there are dual benefits here.
As well as ways to limit your outgoings, recent Government announcements can also help to provide a cash flow injection, thanks to the extended deadline to apply for the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS). Both schemes have now seen their deadline extended until 31st January 2021, so if you’ve changed your mind about making an application you can now do so. You just need to be able to prove that your business would be viable if it wasn’t for Covid-19. What’s more, neither has to be repaid for the first 12 months, and the repayment term of 6 years can be extended to 10 years. For more information go to the British Business Bank website.
2. What can you do to manage your outgoings?
In addition to the ‘critical payment situation’ measures outlined above, there are plenty of other things SMEs can be doing at this time to ensure they’re not paying out any more than they need to.
As a starting point, speak to all your suppliers to see whether there are better deals on offer, or price reductions to take advantage of. It’s very much a case of “if you don’t ask you don’t get” on this one.
You should be trying to get to a position that payments to your suppliers are, at the very least, aligned with the dates that you get paid by your debtors. If your debtors are paying you on 30 day payment terms, you don’t want to be paying suppliers sooner than this. Ideally you will get some supplier payment terms longer than 30 days. But don’t get greedy. The objective is to pass on any preferential terms you can get from your suppliers to your own customers.
At this time businesses that buy materials in order to create products are most at risk from the above. These SMEs are still incurring costs of materials at all times, whether they’re selling their products or not. Our advice here is to take a close look at your supply chain and maybe look at cancelling or reducing some orders, so that you’re not in turn incurring the liabilities.
3. What can you do to maximise your income?
So we’ve told you above that you could ask about extended payment terms from your suppliers. But, when it comes to ensuring you’re getting paid yourself, this is one of the biggest mistakes you could make.
At this time, getting paid on time can make such a huge difference. That’s why we’d advise against agreeing to extended payment terms with any new accounts. Set 30 days as your maximum, and anyone who won’t agree to that needs to understand that it’s the difference between your business being around in 6 months or not.
We’ve already provided tips on getting paid at this time, so we won’t dwell on this. Just keep a tight rein on your cash flow and ensure that your supplier terms and customer payment terms are in sync.
It’s not just about the health of your business at this time though. A recent survey found that 71 percent of entrepreneurs have experienced workplace stress in the past 12 months but only 25 per cent have sought professional help in that period. That’s a lot to be bottling up. That’s why it’s even more important to take action now. Inaction at this time could mean people sat at their desks worrying about the situation. And it isn’t likely to go away for the next 3-6 months. The longer this pandemic goes on, the greater the risk that the mindset of SME owners could switch to a permanently negative one.
So, for the health of you and your business, now is the time to act to preserve as much cash as possible. The saying “cash is king” has never been more true.
To find out more about how robust your credit control is, use our handy days sales outstanding (DSO) calculator at www.itsettled.co.uk/dso-calculator