It’s not all doom and gloom out there but, as we gradually come out of lockdown, businesses that want to survive must adopt a realistic perspective. This is because there is probably £133 billion worth of debt which businesses have built up during the coronavirus lockdown – and this is no exaggeration!
According to the credit publication “Credit Collections Risk”, “Market Finance” have reported that 9 in 10 businesses are waiting to be paid a staggering average of nearly £150,000 for work done during the lockdown. And with only 43% of applications for the Government’s Coronavirus Business Interruption Loan Scheme (CBILS) being successful, it’s no wonder that, for some, the alarm bells are ringing.
Whilst the CBILS is very welcome, the reality is that it will contribute only £10-20 billion towards funding a deficit of £133 billion. So, this leaves a funding deficit of around £113 billion which possibly could be filled by companies raising additional funds from equity or, perhaps, seeking to restructure their debts.
Perhaps unsurprisingly, this echoes what the chairman of Aviva Insurance said mid-May when he wrote to the governor of the Bank of England, saying “... In the short term, the financial impact on businesses large and small is serious and profound” and that, to avoid the worst effects of the crisis, businesses will need “full scale recapitalisation” to alleviate an unemployment hit. In addition business investment at all levels will be needed to help the economy.
Whatever the outcome, businesses will need additional capital to keep them afloat. And inevitably, it will take far longer for creditors to be paid.
Hopefully you will then be in a position to establish if you are going to have a cash shortfall. If you think that this is likely to happen, one option will be to approach your bank, explain the position and ask if they can give you additional support. Financial institutions are far more likely to be receptive to such an appeal if you have conducted a detailed financial appraisal and presented this to them in a professional manner – possibly prepared by your accountants.
If you approach your customers for your reasonable request for the payment information and they simply ignore you, then what should you do?
Whatever happens, please don’t ignore the situation. You will have to take some sort of action to evaluate as best as possible the liquidity of your debtor book and when it is likely to be liquidated. Burying your head in the sand is likely to have serious adverse financial consequences.
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