Coronavirus: Managing your business cash flow

The lifeblood of every business, cash flow is a key concern during normal trading conditions. Now though, the delicate balance between sales, creditors/debtors and overheads has been disrupted for many businesses by the impact of coronavirus (COVID-19). Finding ways to manage the flow of cash through your business has never been more important.

Cash flow was an issue for most businesses before coronavirus. Last year, research found that UK SMEs were owed over £34bn in late payments, with an average debt owed of £34,286 per company. These delays prevent small business owners from paying their own creditors as well as fixed overheads like rent and staff salaries.

With coronavirus now set to have a significant and prolonged impact on most business’ sales, the challenges of paying creditors and overheads and keeping cash flow under control is going to increase.

To help you deal with these issues, we’ve sourced the latest advice on how to keep your cash flowing in the right way. This includes details of the latest support packages from the government. We’ve also included guidance on how best to manage your cash flow from fellow business owners.

Got 2 minutes? Check out our 5 things you can do right now

Got 20 minutes? Take advantage of our resource roundup

5 things you can do (right now) to help manage your cash flow

(1) Get credit, interest-free for twelve months, backed by the government

Since the outbreak began the UK government has announced an unprecedented package of measures aimed at supporting businesses through this crisis. This includes policies focused on maintaining business liquidity. Details of the Coronavirus Business Interruption Loan Scheme, which is designed to keep businesses going, are available online. If you’re a business with an annual turnover between £45 million and £500 million, there is a separate scheme you can access called the Coronavirus Large Business Interruption Loan Scheme.

(2) Don’t bury your head in the sand: chase late payments

For any business, chasing up payments from debtors can be time consuming, even awkward. Burying your head in the sand won’t do you any good, particularly when coronavirus is impacting your sales. Payment terms should be set out clearly in your contracts, and you shouldn’t be afraid of chasing up late payers. Check out invoice chasing software provider Chaser’s 10 free email templates to get debtors paying on time.

(3) Everything is negotiable: speak to your creditors

We’re all in this together. Whilst it’s always best to negotiate up front, these are unprecedented times. Creditors may well be more likely to understand if you are unable to repay at the rate previously agreed. Your business ceasing to trade isn’t good business for them either, so don’t be surprised if they’re willing to be flexible. They know it will pay off in the long run.

(4) In uncertain times, incentivise early payment

Many businesses have found success encouraging early payments from customers by offering discounts for paying up front. This provides a quick cash injection when you need it, as well as rewarding good debtor behaviour with a haircut on costs. A story in The Telegraph from law firm founder Karen Holden about her success in offering ten per cent off invoices for clients who pay upfront is well worth considering.

(5) Use government support to manage your fixed costs

Government support for businesses battling coronavirus goes beyond delivering an alternative supply of credit. The Coronavirus Job Retention Scheme steps in to directly pay 80 per cent of furloughed employees’ wages (up to £2,500 per employee per month). It also covers minimum pension contributions and employer National Insurance contributions. This allows businesses to effectively address their fixed costs, without having to resort to laying off staff. Additional government measures, such as measures to protect commercial tenants who miss rent payments, can help you to prioritise your costs in the face of cash flow issues.

Stay updated with the latest business news and government announcements on coronavirus. Sign up to our weekly newsletter here.

Resource roundup

Managing SME cash flows in the context of coronavirus

Many trade associations and business groups are posting helpful information about managing cash flow during the coronavirus outbreak. To save you some time, we’ve produced a list of the best pieces of advice, guidance and information on keeping your cash flow positive over the coming weeks and months.

Learn more about which government measures can help solve your cash flow problem

The Federation of Small Businesses (FSB) is collating and publishing lots of information about the help available to businesses during the outbreak. This includes a detailed description of measures aimed at alleviating cash flow problems for UK businesses. As you’d expect, the government has also put together a helpful summary detailing all of its announcements aimed at supporting businesses and workers during these challenging times. This broader five-day guide by the Harvard Business Review to keeping your business alive also offers useful planning and self-assessment tools.

Take action on late payment with a step-by-step guide to dealing with unpaid invoices

Right now, the last thing you need is debtors dragging their heels on late payments. While your customers will be impacted by coronavirus too, persistent late payment for goods and services already delivered can turn your cash flow negative overnight. Make sure you know your rights and how to effectively claim any outstanding debts by reading up on the role of the Small Business Commissioner and the Prompt Payment Code.

Understand the impact and forecast, forecast, forecast

The best way to prepare for the impact of coronavirus is to make sure you properly understand it. Use your existing cash flow forecasting software (if you have access to one) or follow FreeAgent’s guide to manual forecasting to address threats to your business. In the short-term, Matthaus Tekathen’s guide to plugging the cash flow gap could help keep the wheels turning on your business. Now might not be the best time to invest in new tech tools, but it’s still worth considering the positive impact forecasting software could have on your business further down the line. G2 have a good list of available products to browse.

Learn from your peers, and remember their advice once we’re out the other side

While these tips are essential for dealing with the impact of coronavirus on your business right now, they also form part of day to day best practice on cash flow management. For more details, and to hear from business owners like you, have a listen to NatWest’s explainer on cash flow issues chaired by retail consultant Mary Portas.