Bouncing back from Covid-19 – make sure cash remains king

In the first of our series of ArchOver's ‘Guest Blogs’, we are delighted to welcome Nick Harvey of Escalate, giving sound advice on maintaining credit control and changes in legislation that may hamper your ability to collect what you are owed - Ian Anderson, Co-founder & COO.

Many SMEs are looking to strengthen their balance sheets as they prepare for the rebound that we all hope will follow the continued relaxation of the Covid-19 lockdown restrictions. But how can you improve your cash position at a time when risk and uncertainty remain a significant concern? Nick Harvey, co-founder of award-winning dispute resolution firm Escalate, suggests some areas of focus.

After some truly dreadful (although not entirely surprising) economic data for the first few months after the Covid-19 lockdown was introduced, there are now some tentative signs that a recovery may be underway. 

A combination of opportunity and risk

The SME community has responded in the way it always does when new opportunities begin to emerge.  As the most restrictive elements of the lockdown are relaxed, more sectors of the economy re-open and consumer and business confidence begins to improve, an increasing number of SMEs are shifting their focus from survival mode towards making plans to begin growing their business again.

That said, management teams are wise enough to recognise that they are not completely out of the woods yet - significant macroeconomic risks remain for SMEs, as well as considerable uncertainty about the trading outlook.

Given these unique set of circumstances, many SMEs have been focused on strengthening their balance sheets. The most forward thinking of leadership teams have recognised that reviewing their credit control policies and procedures has an important role to play here.

The role of credit control

A more enlightened approach to credit control can put your business in a position of strength for when you are ready to re-start your growth plans.  It can also help to protect your cashflow to some extent from any struggles that your clients may face, and may enable you to avoid the worst of the potential unintended consequences of the government’s recent changes to insolvency rules – as detailed at the end of this blog.

So what can you do?

1. Plan ahead

It’s more important than ever that you have a good idea of where you stand in terms of your cashflow and pay particularly close attention to your list of debtors.

2. Keep in touch

Stay in contact with your debtors to find out how they’re getting on and to anticipate any potential problems. And remember that the old adage of ‘a stitch in time saving nine’ is particularly relevant, as a tricky conversation early on can prevent a potential issue from snowballing.

3. Be firm

Make sure that you’re very clear in your conversations with debtors. If you’ve delivered on your side of the contract, the default position remains that you should be paid – and paid on time. Cash is king in the current economic climate – even more so since the changes to the insolvency rules - so try to resist the temptation of writing off (or waiting for) what you’re owed.

4. Be fair

The reality is that many businesses are going to face pressures on their cashflows.  So consider introducing some flexibility when dealing with some of your most trusted clients, and you may be able to agree an alternative repayment schedule with some of your debtors.

5. And if you’re not getting anywhere…

If you feel that you can’t come to an agreement with a debtor, it may be time for expert advice. This is exactly why we created Escalate. If you suffer a financial loss because of late or non-payment, don’t automatically assume the costs of recovery outweigh the benefits.

It goes without saying that this is a challenging time for many businesses.  However, there are steps that you can take to better position and protect yourself, and there are also trusted advisors to whom you can turn for help.  If your business is likely to be affected by any of the issues discussed in this article, or if you need some advice on tackling a commercial dispute or late payment, please do get in touch.

Nick Harvey

Co-founder, Escalate

Nick.harvey@escalatedisputes.co.uk

0207 039 1950

The unintended consequences of changes to insolvency rules?

The government has recently unveiled changes to insolvency legislation to provide a lifeline for otherwise viable businesses that have encountered temporary cash flow difficulties as a result of Covid-19. 

The legislation makes a number of provisions that put the focus on company recovery rather than creditors realising the debts they are owed:

• Companies in financial difficulty can opt for a moratorium that gives them between 20 days and a year of protection from certain creditor actions.
• Creditors are unable to present a winding up petition on the grounds of a business’s inability to pay debts between 27 April and 30 September 2020. This will not apply where the creditor has reasonable grounds for believing that Covid-19 has not had a financial effect on the company.
• From 1 March until 30 September 2020, the wrongful trading provisions have been relaxed to remove the threat of directors incurring personal liability for ‘trading while insolvent’. The government makes it clear that this should not be treated as carte blanche to carry on business recklessly.
• The company’s suppliers will not be able to terminate supply contracts where a company has entered an insolvency or restructuring procedure, or obtains a moratorium.
• Struggling businesses will be able to apply to a court to adopt a restructuring plan (involving debt restructuring and new financing) instead of other insolvency procedures, such as administration or liquidation.

While the new rules have been welcomed by the business community as a way of preventing wide scale business failure, some have identified a growing risk to creditors.  For example, determining whether or not a business would still have been in financial difficulty even without the pandemic – and therefore deciding if a winding up petition can be legitimately served - is likely to be a matter of fierce debate. 

Only time will tell whether the right overall balance has been struck. In the meantime, the new rules provide yet another reason for businesses to keep on top of credit control.