Covid-19: What can businesses do to avoid a cash flow crisis?

One aspect of the coronavirus economic crisis that hasn’t received the media attention it deserves is the problem that UK businesses now face with overdue invoices. This is an issue that has long predated the pandemic, but which threatens to force many more businesses into insolvency as a result of the coronavirus lockdown. 

A major part of the problem is being caused by larger businesses deciding not to pay their suppliers, even when they have the cash to do so. By choosing to build up their own cash reserves by sitting on bills, they are causing problems for their suppliers up and down the supply chain.

From what we are seeing, businesses that have been hit the hardest are those that have a large number of customers, including security businesses, food manufacturers, media companies and logistics businesses, amongst others.

There are also suspicions that coronavirus is being used as a convenient excuse for larger businesses to stop paying invoices. With interest rates at historic lows and finance readily available through the Government’s Coronavirus Business Interruption Loan scheme, surely these bigger businesses could increase their borrowing levels to ensure they can pay their suppliers? Ford recently announced that it would pay some of its suppliers early to help them stave off a cash crunch, ensuring that parts continue to flow to its factories. Other large corporates should follow in its footsteps.

In the face of these liquidity problems, what can businesses do to prevent bad debt from accumulating?

Firstly, businesses should have effective processes in place to ensure that they monitor invoices from submission, sending regular statements and maintaining regular client contact if the client falls behind with payments. Ultimately, they may wish to use the services of debt collection agencies or law firms in order to recover the money owed. Another option is pursuing payment via the courts, but this would require a material investment of money and time, with no guarantees of being paid. Many businesses will simply choose to give up and write the debt off.

A new approach to dealing with bad debt

Businesses and their accountants should consider how they might leverage their bad debts to receive cash up-front and a percentage of any money recovered. This service has long been available to businesses with unpaid consumer debt but has only recently been an option for businesses with commercial debt.

Many businesses are unaware that they can receive cash in exchange for their bad debts and even fewer know that they can do this with invoices that are up to six years old. Helping UK businesses find their way out of the coronavirus economic crisis is why we’re determined to purchase over £1bn of unpaid invoices. This much-needed liquidity could help many SMEs to open their doors again, avoid redundancies and bring their staff back from furlough.

Andrew Birkwood, Founder and CEO of Azzurro Associates

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