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.

So what should you do?

  • Assess the situation now.
  • Contact your debtors to establish their ability to pay.
  • Work out which debts may well have to be written off.
  • Calculate from those debtors who can pay and when you will expect to receive payment – this is important not least because it has been reported that creditors can expect debtor delays extending beyond normal terms of 45 days by between an additional 14 -30 days; some experts have also said that 15% of businesses expect to wait between three to six months longer to get paid.
  • Be realistic and also expect that future payments for goods and services post lockdown will also take longer. 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?

How can Yuill + Kyle help?

We are able to contact these customers requesting that they engage with you and explain what information you want from them and why you want it. We can “separate the wheat from the chaff” by  establishing which of your customers are likely to be in financial difficulty – you will then have to decide whether to write off these debts or offer extended credit terms. For those customers who “can pay but won’t pay”, we can escalate this by sending them a letter before legal action.

Finally, if some of your customers still refuse to enter into a dialogue with us, court action will always be an option. 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.

Please do not hesitate to contact me if you have any questions or if you would like any advice.