In the hope that control of Covid19 improves and the number of cases continues to decline, many business owners will no doubt look forward to seeing sales growth and a return to profitability.
However, there are still risks and threats to be faced in the weeks ahead and business owners / directors would do well to evaluate their own position, considering whether their business model is still sustainable or if changes are needed. If so, the time to plan those changes is now.
During lockdown, many companies will have utilised all their credit lines in an effort to keep afloat and to continue trading. Although they will welcome new orders to boost turnover, directors need to assess their ability to service the cash requirements involved. Clearly, in sectors like hospitality, where stock is very quickly converted into cash, the risks of bad debt are minimal.
However, other sectors like manufacture and construction are very different. Levels of stock are likely to be higher and the time taken to manufacture product means cash requirements will be increase. Suppliers may need to extend further credit, something they may find unpalatable if extensions of previously agreed payment terms have been granted. In fact, suppliers may seek to reduce their own exposure to risks of insolvency, making demands for payment before further stocks are released In view of the fact that the level of County Courts Judgements in quarter 1 of 2021 has fallen by 60% when compared to the same quarter last year, there must be a significant risk that businesses will face legal action or insolvency procedures just at the time things appear to be improving.
A similar problem arises for businesses who have shown a willingness to be more patient in their own sales credit control procedures. Although this may have generated a measure of goodwill, questions need to be asked about whether customers will be in a position to make payment as business activity increases. It will be important that owners / directors ensure their business is not at the bottom of any “priority payment list” if further problems aren’t to accrue. This is especially important with debtor ledgers showing one or two customers as owing a large proportion the total due. If one of those companies were to enter Administration, liquidation or any other insolvency procedure, what would be the effect on future trade, especially many credit insurance firms are already tightening up their own terms of business and availability may be reduced.
T H Financial Recovery work with both individuals and businesses in financial difficulty. If your business is facing problems and you need advice on the options available, we can help.
Give us a call to arrange a FREE, no obligation consultation. We handle both informal and formal insolvency work, including:-
Business Assessment & Restructuring, New Funding Options, Creditor negotiation and time to pay arrangements, Company and Individual Voluntary Arrangements (CVAs & IVAs), Administration, Liquidation, Bankruptcy.
Please call 01282 332222 or email to alleviate your stress and receive practical advice.