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A different kind of financial focus for SMEs

financial_focusAs UK businesses transition from lockdown to long-term recovery efforts, each will be looking at a new and uncertain economic landscape. Here are three financial focus urgencies: payment options, cost control and managing risk.

We’re kicking off a series of finance-focused content with Andrea Melville, head of commercialisation and propositions at Lloyds Banking Group. Andrea has 17 years of experience across retail and commercial banking, and is currently responsible for pricing and balance sheet management, innovation, strategic partnerships and propositions.

Keep payments coming in

Under lockdown, the move to ecommerce has become attractive as a way to create separation at the point of purchase. This has also seen many businesses adopt a pre-order, pre-pay and click-and-collect model. Lloyds’ research shows a 51 per cent uplift in registrations for online banking, including by those traditionally seen as late or low adopters and those aged 50 and above. Andrea advises businesses to review payment options in light of this consumer behaviour to maximise the flow of cash coming in.

“The move away from cash had already started before the crisis. Even the PIN pad is a challenge now, but there are many new and emerging non-proximity payment options. The contactless transaction limit has been lifted to £45 and for higher amounts, there’s card-not-present or telephone payment. Or you can look at payment by URL, Pay-by-Bank, QR codes or mobile wallets. These all allow customers to pay you directly, quickly and conveniently.”

“We’re seeing recovery from those businesses that are making decisions led by their numbers, particularly cash flow and capital.”

Minimise cash outflow

When your cash reserves have already come under pressure during lockdown, you need to manage  upfront investments cautiously. Whether it’s perspex screens at point-of sale, PPE equipment or hygiene stations, there are incremental costs involved in re-opening up your offices, factories, salons or shops. In many cases social distancing may lead to a reduction in customer traffic or production capacity. The net result is a renewed focus for business owners to reduce spend, limit overheads and run a tight ship.

“Pre-coronavirus, small businesses already suffered from late payments and pressure on their liquidity. This crisis has made cash flow crunches more dangerous and cost control is critical as businesses reopen. We advise practices such as regular, short-term cash flow forecasting, adopting funding solutions for  capital projects that don’t consume cash and managing creditor backlog. Paying off any deferred liabilities will help you rebuild trust with suppliers. Even if that means reducing your trading ambitions for a period.”

“Look at rebuilding as a series of small, relatively low-risk decisions. Each time you’re testing, measuring, adjusting and course correcting.”

Be wary of over trading

The temptation in this post-lockdown phase is to sell harder than ever. Commercial teams have been champing at the bit to grow the pipeline and get revenues up. But with unpredictable consumer demand, disrupted supply chains and general uncertainty around a second wave or local lockdowns, it might be best to refocus the business development team on cash and credit control, updating customer lead times and payment terms to reflect current trading conditions and the working capital needs of your business.

“New business at any costs is not what small businesses need right now” said Andrea. “Some customers may be taking longer to settle invoices or end up not paying at all. Talk to your sales teams about assessing prospects’ ability to pay and applying tighter credit limits. Bring credit control into sales conversations – winning business with longer credit terms or using shorter payment terms as a negotiation tool. Ideally you’d develop a positive cash flow forecast with invoicing milestones for every project or contract before agreeing to work.”

Click here to use our coronavirus cash flow crib sheet to help direct your important financial decisions.

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