The coronavirus lockdown is turning into an endurance test for everyone but it is especially difficult for the business community who must contend with the financial shock caused by the enforced interruption of trade and the continuing uncertainty.
Understandably many people are focusing solely on survival but there are some productive things that you can do during this frustrating time which will help ensure your business is in the best possible shape when normal trading eventually resumes.
Chase current debtors
The short notice before lockdown began allowed little time to chase outstanding invoices and many more will have become due for payment over the lockdown period. But with cashflow at risk, you should not hesitate to collect the money that is rightfully yours for fear of being knocked back or alienating your customers.
There is no reason not to write to companies to remind them of the money they owe and encourage them to agree a realistic payment plan if they are not in position to settle the full amount straight away. Be persistent – follow up your letters or emails with a phone call – but it is also in your interest to be flexible in your approach too. For example, you may decide to waive your usual interest charges. If you are able to have honest and open conversations with customers now and support each other, it should help your business relationship in the long-term.
If your usual credit control team are unable to work from home, consider outsourcing your collections to a reputable service. If you already outsource this function, talk to your provider about the steps they are taking to secure payment.
Make the most of help and financial support
The Government has announced a number of measures, some sector-specific, designed to help businesses deal with the financial shock of the pandemic, including the Coronavirus Job Retention Scheme, Government-backed loans (CBILS) and VAT deferrals. Not all of the schemes will be available or suitable for your business but it makes sense to investigate the options using the business support finder tool on the Government website.
Local authorities are operating a COVID-19 business grant and business rate relief schemes, although most have been inundated with applications. Organisations like the FSB, the CBI and the British Chambers of Commerce have information hubs on the websites where you can access information about the support available.
Speak to your own bank, landlord and suppliers in advance if you are likely to need a payment holiday or new terms. It is in their interests to support good customers so they have the best chance to recoup debts. Don’t simply cancel payments as this will affect your company’s credit rating.
Evaluate management processes
Review the strengths and weaknesses of your current systems and processes. Credit management is a good place to start as it is often neglected in favour of sales and marketing. If your DSO and cashflow reports show whether this is an area that needs attention, aspects to look at include:
- Credit checking measures and due diligence for prospective and existing clients, preferably through a reputable credit checking agency
- The wording of contracts and credit agreements – do they clearly set out payment terms, late payment interest and include an enforceable retention of title (RoT) clause
- Decision-making processes for extending credit – what further checks are carried out and who has authority/responsibility?
- Invoicing and credit control – can invoices be generated more quickly and what is the system for chasing payments and
- Credit risk mitigation – what measures are in place to protect your business from the impact of a bad debt or protracted late payment eg self-insurance, letters of credit, credit insurance.
Consider how to diversify your supply chain
Even before the UK lockdown, February and March saw extensive supply chain disruption as Chinese factories were shut down in response to the outbreak. While the resumption of manufacturing in China is positive news, it is likely that supply chains will continue to be affected in the coming months by both the measures implemented by different governments and the logistical difficulties of moving goods. There is also the distinct possibility of further lockdowns to deal with a second or third wave of infections.
More than ever, it makes sense to mitigate supply chain risk by doing what you can to diversify so you are not reliant on suppliers from the same area. Research alternative sources of goods and materials with input from a reputable provider of business intelligence so you are able to make informed decisions about prospective trading partners. Your reward should be a more resilient supply chain and – in the long term – the chance for better trading relationships.
Research potential markets
Everyone is feeling the impact of the coronavirus pandemic and the sad fact is that some of your valued customers may not survive. Now is therefore the time to assess untapped domestic and export markets for your goods and services.
To avoid jumping from frying pan to fire, it’s important to get a comprehensive picture of the trading risk. You should therefore work with an information specialist who can provide an insight into the financial health of potential customers and the country and sector in which they operate. That includes the underlying economic strengths and prospects of recovery, the infrastructure, business climate and possible trading barriers. Coface’s free economic reports and resources are a good place to start but you can also obtain more detailed company solvency reports.
The objective should not be to chase sales at any cost but to target your resources on the most promising markets and prospects so you can trade sustainably.