COVID19 & Cashflow: Dealing with Lenders, HMRC & Creditors

Conatus is a business involved in funding business expansion and turnaround. However, the challenges presented by COVID19 are on a new scale. Having successfully supported over 40 business turnarounds in the last three years, we would like to offer the benefit of our experience to businesses at this difficult time.
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COVID19 & Cashflow: Dealing with Lenders, HMRC & Creditors

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Directors and business owners are digging deep to survive and keep loyal staff in jobs, and our advice is for them to engage with lenders, HMRC and other creditors at the earliest opportunity, where cashflow difficulties are expected. This is what we do in turnaround situations and it can lead to better understanding, trust and ultimately support from the stakeholders in whom you rely.

The key is early engagement with lenders and a well thought out proposal with supporting financial information, such as projections that demonstrate why the business will be able to make the repayments after the present turmoil. Please be mindful that banks will focus on existing customers right now, rather than new business; so, it’s very important to maintain the best relationship possible with your bank. Bankers hate surprises and will be swamped with support requests, so to recap,

  1. Engage with your lenders as soon as possible – Don’t delay!
  2. Prepare and present a well thought out plan,
  3. Demonstrate, with supporting projections, why the extra funding or other support will be serviceable after the crisis – be realistic,
  4. Seek professional support early, if you need help.

The Government and British Bank is offering grant support, other reliefs and COVID19 Business Interruption Loans (CBILS) for up to £5m for businesses with revenue of less than £45m p.a., but it is important to note that these loans will still be based on a viable business proposition, that just lacks availability of the normal security a bank would want – this being replaced by an 80% guarantee from the Govt. However, the business remains 100% liable for the loans, at the time of writing. The scheme can cover overdrafts, invoice finance and asset finance facilities, not just loans.

When thinking about your proposals to lenders, consider,

  1. Critical Review – What are the true risks to sales, supply, debtors and staffing and how could/are you mitigating these?
  2. Demonstrate that you are in control (as much as is possible) i.e. prepare forecasts on what you think will happen and a worst-case basis. Translate these into the Key Performance Indicators (KPIs) that you will use to measure whether you are on plan e.g. daily/weekly sales and detailed running cashflow monitoring,
  3. Investigate – What else could/will you do e.g. cut costs, reduce directors remuneration or dividends, take up Govt. support such as business rate reliefs, COVID grants, recover Statutory Sick Pay (SSP) and HMRC Time to Pay arrangements for VAT, PAYE etc, inject capital into the business such as increased equity capital or directors loans, offer more security to the bank in return for extra support, seek rent reductions or a switch to monthly rather than quarterly in advance, delay or shelve capital expenditure plans, accelerate plans that make the business more efficient or resilient. Also, what other help could the bank consider instead or as well as, such as the following examples,
    1. Increase or extend existing facilities,
    1. Capital or total repayment holidays on loans,
    1. Covenant waivers (avoids default) or relaxation or removal of covenants.
  4. In addition to lenders, engage with other stakeholders as early as possible e.g. landlords, suppliers and creditors

Finally, if contacting HMRC to seek Time to Pay (TTP) arrangements the telephone lines are swamped but be well prepared and have a summary of what you are seeking, and why, to hand. Seek longer than you need as they usually seek to shorten your proposal. HMRC are generally very reasonable but like to know what you are doing differently i.e. your own resourcefulness and resilience – the things from the investigation stage detailed above. When we have trouble speaking to an inspector to seek TTP for clients, we set out our proposal in a brief letter including the time and date(s) we tried to call and retain a proof of posting. This will make you more resilient to any subsequent challenges from HMRC, even if they don’t reply, which is the norm.

Justin Nevison-Grainger is a director and co-owner of Conatus Financing Solutions. Contact Justin on or call 01473 851587

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