A further update on various matters Coronavirus-related from Jonathan Rowden written prior to the Chancellor's expected further announcements this evening (20 March).
So, lots of emails again, often repeating the same thing and sharing the same links; but no real concrete proposals to help small businesses deal with the Coronavirus issue.
At 17.23 on Thursday I heard Boris Johnson say if we stand by our employees then the Government will stand by us; but more details will be provided. I think they need to give greater clarity on this and not in a day or two (which could mean this time next week!).
What are the 4 key action points in this update?
- Talk to people who owe you money. Can you accept credit cards and would a “prompt payment” discount bring in the cash?
- Talk to your suppliers and agree payment terms. They may offer you a prompt payment discount.
- Review and cancel direct debits to HMRC and local authorities.
- Prepare and update your business projections. This will be needed whether or not you need bank finance.
Get the money in!
Now is the time to get people to pay you - so you can pay the people you owe money to.
'Buy Local and Pay Local'
What practical steps can you take to get the cash in:
- First of all, ensure you can accept payment by credit cards (including Stripe and PayPal). If customers have cashflow concerns, they may be willing to pay on a credit card.
- Ring your customers to ask for payment of any overdue invoices. Rather than accepting “OK I’ll pay you tomorrow”, suggest they pay by credit card and let them know you are ready to take their card details.
- If you are notified that a customer’s Direct Debit payment has been cancelled, give them a call to find out why and agree a revised payment date.
- Consider offering a prompt payment discount for a limited period only. Usually this is not a great idea for regular customers; a 1% prompt payment offered on a monthly bill of £1,000 always paid 30 days after invoice date is, effectively, an 11% charge to bring in £1,000 30 days early. But these are not usual times. Remember to stop the discount when we return to normal times (which we will).
- Keep your books and records up to date so you know who has paid you. Xero and Receipt Bank are proving to be a godsend to our clients, as keeping books and records up to date with remote working has never been easier.
- Encourage clients to pay by internet banking rather than by cheque (especially if the office is now out of action).
And what about the cash going out?
The temptation is going to be to withhold payments to suppliers to preserve cash. Please think carefully how this might impact your local suppliers, as they will need cash to continue to trade.
What practical steps should you take:
- Ring HMRC’s Time to Pay helpline 0800 0159 559 for any debt owed to HMRC. There are generous payment terms currently available, if you ask for them. We are unsure if this could affect your credit rating – more on this later.
- Cancel any Direct Debits to HMRC and, if you are sure you will get the rates “holiday”, cancel that Direct Debit as well.
- Review all discretionary spending going forward and delay any non essential expenditure (i.e. hold off getting the car serviced but not the MOT).
- Talk to your suppliers about deferring payments to them and ask if they would offer you a prompt payment discount.
- Consider paying more of your bills by credit card (especially if there is a 1% cash back - as there is with the Capital On Tap card). This could give up to 56 days' interest free credit.
Please give priority to paying your local small businesses as they are currently facing the same problems as you. It is important that these businesses are still there where things start to return to normal (and be in no doubt, it will do so). If businesses have to downsize as a result of you and other customers not paying them, will they be in a position to work with you? Will they give priority to their customers who have supported them through this difficult time?
So please 'Buy Local and Pay Local'.
It is easy to fall into the “sky is falling” mode of thinking when the reality is “Yes, it is tough, but it will get better and normal service will be resumed”.
So, you need to prepare a cashflow projection to see what the possible outcomes might be. If you need to arrange a temporary loan, those with a plan will improve their chances of getting a good deal compared to those businesses who ask for a loan with no back up information. We usually suggest a worst case, expected and best case for projections, but sensibly just focus on the worst case and the expected case.
Now, the worst case will clearly show a cashflow problem. The key is then to work out what you can do to overcome the cash shortfall (by chasing the people that owe you money and delaying payments to HMRC etc.) so you have a plan for getting through the next 3 to 6 months.
As these are unusual times and as “necessity is the mother of invention” we are suggesting to clients that in the income section of their cashflow model, they have several lines for “new income streams”. This is to focus their minds on what new things they can do to generate income rather than keep on doing what they have always done in the way they have done it.
These new income streams might just be short term options rather than a long term change in the way they do business.
Good examples of “outside the box” ideas:
- Pubs and restaurants doing takeaways,
- Food wholesalers (who sell to pubs and restaurants) - selling and delivering food boxes to the public as a way of generating income and keeping staff employed.
Update on Coronavirus Business Interruption Loan Scheme (“CBILS”)
We finally got through to two senior bank managers to chat about CBILS. No concrete proposals available to them yet. They confirmed that they expect to get more details next week and their take is that:
- Businesses will have to apply to the Bank for a loan under their usual terms; so, you will only get moved to the CBILS option if you cannot meet your bank’s standard lending criteria.
- The proposed interest rate is not known, and one mentioned that under a predecessor scheme there was a 2% charge paid to the Government.
- Paperwork still needs to be completed and they thought this might mean 10 to 15 working days before the money would be available.
- And, more importantly they both said borrowers need to remember this is a loan that will have to be repaid out of future earnings.
Update on rates and the Support Grant
The local councils are currently working through their list of businesses that will be entitled to the 100% rate relief from 5 April. If you are sure you are going to get the 100% relief, stop the Direct Debit that is due to go out next month, rather than allow the council to collect the rates and then refund it in due course.
We are told that the local councils are working on getting the grants out to businesses sooner rather than later.
We will keep you informed of developments as they arise.
One question that is on most people minds is “Am I entitled to the grant?”. Our understanding is that:
- The £10,000 grant will be paid to all businesses in receipt of Small Business Rate Relief,
- The £25,000 grant funding will be for retail, hospitality and leisure businesses with a rateable value between £15,000 and £51,000.
Here is the link to the guidance issued in respect of the rates “holiday” which includes definitions of what is or is not considered to be a retail, hospitality and leisure business:
The guidance also includes examples as to how the reduction in rates will be calculated; but as we had no idea what an “Hereditament” was, here is another link to save you time:
We are expecting that there will be an “appeals” process where business which consider they have been unfairly excluded from the £25,000 grant, can ask for a review.