This month, our Head of Accounting Partnerships, Nikki Gandhi, participated in a panel discussion on improving trade credit for small businesses. The webinar was organised by Codat, a platform for small business data. It was an encouraging and very insightful half-hour for any small business owners and their advisors. There was useful advice on how best to protect credit and cash flow in the coming months. If you didn’t manage to join, then read below for a summary of the key points raised, or watch it here!
The session was led by Codat’s Commercial Director, Matt Hicks. He was joined by industry experts in credit management, small businesses and SME finance, who shared their advice. The whole panel agreed that although the country’s GDP took an unprecedented hit earlier this year, falling by 20%, there’s also a lot of cash flowing around the system at the moment. So, what happens next for business owners? And what do they need to do to protect their credit and cash flow? An advisor’s role is especially important right now as businesses navigate even more uncertainties.
Although certain industries have seen high insolvencies as a result of the coronavirus pandemic, it hasn’t been spread equally across the board. Ultimately, there are always winners in crises. But the government’s stimulus packages have really helped a lot of businesses stay afloat. The only issue is that they won’t be around forever. This is the time to plan for the day when we can’t rely on government-backed loans or grants anymore
The panel identified their main advice for small businesses and their advisors:
1. Check payment terms
While some big businesses have recognised the pain their smaller suppliers are feeling, not everyone is being so generous. One of the most frustrating scenarios coming out of the crisis is increased payment terms. It’s reaching 90 days in some cases, and according to Nikki, even 120 isn’t unheard of at the moment. Worse yet, some businesses are choosing not to pay their invoices at all. Evidently this disrupts the cash flow supply chain and impacts spending power. However, it also affects the way a business is viewed by banks. The real picture of a business is not fairly reflected on their balance sheet if they don’t have the funds they’re owed in their accounts. And that makes credit harder to secure.
Businesses need to talk to one another and be very clear about payment terms. Don’t invoice late or inaccurately, and don’t pay late. It’s as simple as that. Restoring confidence is especially needed right now, so correct invoicing procedures are invaluable. Can you help your clients with invoicing best practice? Speak to businesses you work with that are experiencing fewer issues and ask what software or systems they use. Your network of clients is often where you can learn the most for the others who need a little help.
Any financial advisor should know the correct complaints process to log any breaches of payment terms. Philip King, the UK’s Small Business Commissioner, recommended visiting the government website to do so. It’s an impartial and independent body that’s appointed by the government, and entirely free to use. Businesses that are being mistreated should report any issues as soon as they can.
2. Show the strength of their ledger
Touching on what was mentioned above, late payments can affect how well-performing banks perceive you as – and therefore what credit risk you pose. There has been talk of an ‘SME Passport’ to help with this. In effect, SMEs would share or contribute credit data to a credit profile. This would enable suppliers, lenders or financial conduct authorities to work with them more confidently.
The more data a business can contribute, the more of the picture you can see. Share as much contributed data as possible with potential suppliers and customers. Any mechanism a business can use to show their worth will help them access trade credit. Give any information that can support your application, for example, your management accounts.
It’s all about showing the reality of your balance sheet to give you control over how your business is perceived. Show what lending arrangements you have and prove that you’re paying things on time.
3. Know their customer’s customer
Any business is only as strong as their customers. We’re seeing insolvencies rise and redundancies begin, so banks and lenders are warier of who they offer credit and financing to. Use this time to think about who your customers are and how well placed they are in the current environment. If you can show that you work with safer customers who are more likely to stick around, you prove that you’re a better bet too.
Ultimately right now we’re all operating with network-based risk, so make sure your client’s network is as strong as it can be. That may also mean re-evaluating who they’re selling to, and targeting new customers instead. This isn’t only sensible for their own bottom line, but also for their potential credit.
4. Act fast
Preparing for a post-CBILS landscape is obviously a priority, but these schemes haven’t disappeared yet. The government-backed loans are fee and interest-free for 12 months. Inform, remind and help your clients as much as you can. There are so many CBILS and non-CBILS schemes on a local as well as national level. Businesses that are aware of everything available to them will be in a strong position to make sure their balance sheet looks healthy. Ultimately the loans can help prepare them for the coming months.
Remember that any client who has taken a Bounce Back Loan can use a CBILS loan to refinance it. Even though the CBILS deadline has been extended twice, it won’t go on forever. In Nikki’s words, ‘deadlines approach fast, so act quickly when the scheme’s right’. Make sure anyone who could benefit from this unprecedented funding has the tools to access it before the deadline comes.
Help your clients understand what data they can use to inform lenders, suppliers and creditors of their business’s strength. Give them the tools to make invoicing more efficient and effective, and make sure they know what funding is available. At MarketFinance, we offer loans up to £250,000 and a revolving credit facility up to £5 million through CBILS. Show your worth as an advisor and let them know what they can use you for.