Look beyond an overdraft to increase business cashflow, urges Complete Commercial Finance’s Gary Webb
It’s always been the case, but for businesses of every size cashflow is one of the most important factors for success.
In what has been an unprecedented year, this has never been truer and while traditionally many businesses have relied on an overdraft facility to navigate leaner times, COVID-19 has shifted the goalposts in a number of ways.
Understandably, the pandemic has affected the performance and profitability of some companies, and with tightened lending in some cases overdraft facilities have been reduced or withdrawn. This can be challenging and it’s important to remember that a lender has the right to call in this line of credit, without notice, at any time.
Having spent 44 years in the banking industry, most recently as NatWest’s relationship director for West Norfolk, I understand how a global decision can impact a small, regional business. During my career I’ve worked through four major recessions and my experience is that trading out of a recession is harder than trading through one.
What I mean by that is that while a business can tighten its belt during tough times, the lag effect on reduced cashflow can impact a business’ ability to operate when orders start to pick up.
I recently worked with a manufacturing client who has experienced precisely this scenario. Although the company continued to operate during lockdown at a reduced capacity, it was forced to dip into cash reserves to pay staff and suppliers, and keep things ticking over. As restrictions were lifted, the business reassuringly saw a rush of orders but with 60-day payment terms in place it is now struggling to cover the gap until the cash is back in the bank.
During my banking days, I would have potentially been able to offer this client an overdraft or single-source loan but, now working with Complete Commercial Finance, we have access to a wider range of options including invoice factoring, refinancing and funding from specialist lenders. The reality is that a business can’t stand still and needs to be open to exploring other ways to establish a working capital in the current circumstances.
The government’s Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) have offered support for many firms this year. At the end of September, Chancellor Rishi Sunak’s Winter Economy Plan extended CBILS and BBLS loans from six to ten years, introducing a Pay As You Grow option to offer more flexibility to repay debts, plus interest-only and six-month suspended repayment options without affecting a business’s credit rating.
There are encouraging measures, but it’s important to think long-term. Last month, we worked with a client who had taken a BBL but had used the funds to buy equipment over the summer. With a delay on payments by clients, the business was suddenly struggling with cashflow and he needed to take a loan to cover monthly operating costs. While we were able to secure a business loan, the cost of this short-term lending was greater than the delayed 2.5% charge on a BBL which will ultimately cost the company more.
We are in unchartered waters with COVID-19 and are only just beginning to understand how lenders will factor in CBILS and BBLS borrowing when assessing a business’ financial standing.
The example above shows how a short-term view can impact long-term performance. It’s never been more important to take professional advice and use the ear and deep understanding of commercial finance experts such as ourselves to navigate the best way forwards.
While we are sadly living in uncertain times, knowing you have taken every measure to protect your business’ financial future is surely the best way to navigate the challenges many businesses will experience in the coming months.
Contact Complete Commercial Finance on 01553 611619 or visit ccf.finance