Take action on your cash crunch before it’s too late

June 13, 2023

Funny how most business costs leave a company’s bank account at fixed days through the month, yet income for goods sold or services supplied seems to land when debtors feel like sending it. Of course, it isn’t funny at all, especially in these times of soaring energy costs, employees’ pay demands and higher interest rates.

Businesses need cash just to breathe, let alone grow. A debtor wilfully holding back cash is effectively holding a pillow over a supplier’s face and it’s a miserable situation presently facing more than half of SMEs. Many of these enterprises began the year feeling relatively optimistic and planning significant investment, notably in digital improvements and cybersecurity. Those intentions are likely to be scaled back as the cost of funding continues to rise and revenues from trading remain under pressure.

Poor cashflow remains the biggest killer of businesses, particularly SMEs. They inevitably end up in a cycle of robbing Peter to pay Paul, too often in a miserable combination of late settlement with suppliers and non-payment of corporation tax and/or VAT.

While so much is beyond the control of managers, they must make sure they exercise as much grip as possible with cash owed:

  • Contracts are crucial when work or goods are invoiced in arrears
  • Make clear that interest will be charged on late payments
  • Establish a robust, stepped policy for eventual legal action

Suppliers to troubled companies must have the confidence to chase payment and enforce their terms, regardless of the perceived risk of upsetting a customer: if a business agreement is too fragile to able to discuss money indisputably owed, then it will invariably lead to a bad debt, at least in part.

For those businesses already facing existential challenges from poor cashflow, managers can’t afford to  bury their heads in the sand: they MUST take action sooner rather than later to keep their businesses afloat and, in particular, stay on the right side of HMRC:

  • Get on the front foot with tax. Engage and explore a time to pay arrangement. Being unresponsive only aggravates HMRC and hastens a winding up petition
  • Look at extending credit terms. Revisit repayment profiles for loans and propose realistic, achievable amendments. A loan that remains serviced, albeit differently, is still profitable for a lender.
  • Consider the moratorium framework to gain a short period of “breathing space” while pursuing a rescue or restructuring plan. During this legal moratorium no creditor action can be taken against a company without the Court’s permission.

If your business is facing severe cashflow pressures, contact us at Buchler Phillips for professional advice on credit management, invoice discounting, overdraft planning, communicating with HMRC and contractual terms to minimise the impact of late payments.

Written by Runita Kholia, Senior Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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