Coronavirus Business Interruption Loan Scheme (CBILS)  

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Managing cash flow has always been a priority focus for businesses but the coronavirus lockdown has magnified this considerably.

A question we have been frequently asked is – my business uses an invoice discounting facility, but with a sharp downturn in revenue, how will I fund working capital?

Luke Venner

 

Like business invoice factoring, invoice discounting is a form of short-term borrowing against your outstanding invoices, which can provide an invaluable source of working capital. With invoice discounting, you maintain responsibility for raising invoices and collecting payments, so your customers are unlikely to be aware of your relationship with your lender.

Working capital management is the process of optimising net current assets relative to business trading volumes, and is an important source of cash throughout the business cycle, especially in a downturn.

The payoff for effective working capital management can be even greater during a contraction, when a sharp decline in revenue can greatly limit available cash, especially for those businesses heavily reliant on invoice discounting.

So, if both your revenue and invoice discounting facility are reducing, and liquidity is becoming an issue, how will you continue to fund working capital?

  1. Talk to your funder – we have found that early discussions with existing funders is yielding the quickest results. They are providing support to their customers through payment holidays and restructuring of facilities.
  1. Credit control – boost efforts to collect debtors and proactively remind customers of upcoming payment deadlines. You should also review credit terms and assess whether payment terms should be reduced. If customers simply ‘won’t pay’ rather than ‘can’t pay’, and your internal credit control procedures have been exhausted, you may wish to consider our Escalate Debt Recovery service.
  1. Trade creditors – talk to your suppliers and try to renegotiate payment terms; prolong payment terms for non-core suppliers.
  1. Stock management – declining demand and revenues can lead to excess stock, so by acting quickly to curb the inflow of new stock, businesses can adopt a more incremental approach to stock management. Before ordering new stock, consider demand and stock levels across the business, and consider cancelling, freezing or postponing orders as soon as revenues slow. Short-term measures such as offering purchase incentives and volume discounts may help to liquidate stock.
  1. Reduce staff costs – assess which of your staff are critical to the ongoing running of the business and consider if others can be furloughed. Further guidance on this is available on our Coronavirus Knowledge Hub.
  1. Raising finance – either a bank overdraft, a working capital loan, a merchant cash advance or a revolving credit line might help to provide the funding you require until revenues begin to increase again. We can quickly appraise your options from over 100 lenders and help you to secure the funding you need, including the government’s Coronavirus Business Interruption Loan Scheme (CBILS).

A business’s strategy must fundamentally change when demand drops, and those businesses which can effectively manage their working capital can generate cash, streamline their operations and improve their cost position.

COVID19 presents unprecedented challenges for businesses across numerous sectors. If you require further guidance and support, please contact Luke Venner, senior restructuring manager, on 01392-448874 or email, lvenner@bishopfleming.co.uk . Alternatively, visit the Bishop Fleming Coronavirus Knowledge Hub.