Cashing in on Covid-19? Or, Avoiding Payment.

Some businesses are using the Covid-19 crisis to stop paying their suppliers, but banks have agreed with the government to support business through a number of different schemes.

I received the following message from our bank 2 weeks ago, all well and good I thought, until I reached the last couple of points about maximising credit and seeking more support from suppliers. What are the banks for?

My 'relationship manager' writes:

The UK Government introduced emergency measures in the Budget to support the economy, 'the bank' at the same time was working closely with the Government and UK Finance to identify what we can do to support our clients. 

Some key areas:

• Allocated GBP5bn from our SME (Businesses with turnover <￡25m) Lending Fund for businesses that need extra support
• Launched a dedicated helpline to support any client queries, which is currently open 9am to 5pm Monday to Friday
• We can consider repayment holidays to free up cash
• We can consider short term overdraft facilities
• We can review existing overdraft or trade loans to allow stock to be held for longer
• Provide trade solutions to support clients with supply chains

  Top 8 Areas to Review – Financial Impact Analysis

1. Prepare an updated summary of all assets and liabilities, preferably in a balance sheet format. Determine all receivables and liabilities including those which may be contingent or arising from a claim for damages. The review of liabilities must include all accrued costs, GRNI and commitments.

 2. Prepare an updated weekly cash forecast with at least 13 weeks visibility based on the best information available of probable trading outlook.

 3. Prepare an integrated monthly forecast on the same basis to provide clarity over liquidity generation.

 4. Consider a range of scenarios, including for example (i) lower sales and/or price discounting as well as a change in mix; (ii) depressed margin arising from higher input costs; (iii) changes to the operating cost profile of the business. Those scenarios should encompass three generic shocks to the business: (a) shifts in demand; (b) supply constraints arising from disruption to supply chains; and (c) operational constraints arising from absence of key personnel. The cash and integrated forecasts should be reworked consistent with each scenario and refine the cash forecasts under each scenario to determine how liquidity could be optimised.

 5. Identify key receivables and take action to secure monies and review credit insurance position

 6. Fully review your cost base and outgoings to ascertain flexibility and have an action plan on how to execute cost reducing measures at pace.

 7. Identify ability and scope to maximise credit from suppliers. 

 8. Speak to your stakeholders to ascertain what support/headroom can be provided, including shareholders, funders, suppliers, customers, HMRC etc.

I thought banks were in the business of lending money? Apart from funding for capital purchases, loans are also used to provide working capital, the principal use of which must be to pay suppliers. At this time of national crisis, with government backing for additional borrowing, I find it astonishing and disappointing that the advice then is to stretch your suppliers further. So business then, is to act as it's own bank, expecting suppliers to allow customers more credit, possibly uninsurable, and increase their risk exposure?

I'm not adverse to working with individual customers at any other time, many companies face cash flow difficulties for all sorts of reasons, but the circumstances are often specific to that particular business, or industry, not all at the same time. This time, we're all in it together and it's vital that banks support all their customers to keep the cash flowing and invoices paid.

My plea to business is this, let's all make whatever arrangements necessary, with our own banks, keep the cash flowing, and pay our bills.