The cashflow crunch

COVID-19 may have put a freeze on the economy, but the world has not stood still – businesses now need to manage competing demands, understand their exposure and be aware of the support available to them.

The government acted quickly and at speed to deliver a financial support package for businesses over the past year in relation to the COVID-19 crisis. However, as the UK enters a reopening phase, a host of competing challenges present themselves as the economy unlocks. For many businesses, this will mean:

• Managing debt repayments
• Insurance coverage
• Rent arrears
• Tax deferrals
• Adapting workforces and operating models to deal with new levels of demand.

There are two key steps to take to start the process of dealing with those difficulties: act early, and seek advice.

Key challenges across industry – pinch points for business cashflow

Emergency loans, including the Bank of England COVID facility, provided almost £180bn to over 1.6m firms in total since March 2020. This includes over £75bn to nearly 1.6m businesses through the three loan schemes.

Gross bank lending to smaller businesses in the UK rose to £104bn in 2020, an 82% rise on 2019 lending data and driven largely by demand for government support loan schemes.

From 6 April until the 31 December, businesses of any size will still be able to access loans and other forms of finance worth up to £10m via the government’s Recovery Loan Scheme. There is also Pay As You Grow for the over 1.5m businesses that took out over £46bn in bounce backs to manage repayments, including capital and interest repayment holidays.

Whilst these measures should now help businesses restructure and refinance, there is concern over levels of unsustainable debt when factoring in existing debt in the UK economy.

This is coupled with further pinch points for businesses relating to the withdrawal of government-backed insurance products, re-opening costs, tenants facing large rental bills, and an accumulation of pandemic-related tax deferrals. Combined, this can make managing cashflow a difficult balancing act for many firms that continue to struggle.

Dealing with financial distress – support and advice

Affected firms do not need to manage this balancing act on their own - there is support out there for businesses that are struggling with cashflow challenges. Businesses should seek to gather professional advice and act early if they think they are entering financial difficulty.

Members can get in touch with the CBI via our dedicated COVID-19 mailbox and using the resources on the CBI’s Coronavirus Hub.

Additional resources 

R3, the trade body for the insolvency and restructuring profession, has produced an essential resource which aims to make it easier for directors to start the process of dealing with financial difficulties. This includes:

• Setting out the duties and responsibilities of company directors and the actions that can be taken against directors where these aren’t met
• Providing a one-stop guide to the main options – both informal and statutory – that are available to resolve corporate financial distress
• Explaining how the insolvency and restructuring framework and profession can help to rescue viable businesses, save jobs, and repay creditors
• Helping to point directors to qualified and regulated sources of this advice.

See the full guide to understand the options available to your businesses and how seeking advice at an early stage can prevent financial problems from becoming unmanageable.

The CBI will continue to promote relevant resources to members to help manage their cashflow during this period. The CBI will also maintain it’s dialogue with government, and across industry, to highlight key areas of concern.