The government’s furlough scheme has been keeping many family businesses afloat, but with new restrictions and the threat of a second wave looming, will the new Jobs Support Scheme be enough to save jobs? What else can businesses do to keep cash flowing? We spoke to Sean Moran who is a partner and insolvency specialist at law firm, Shakespeare Martineau to find out more.
What is the Job Support Scheme and how does it work?
The Job Support Scheme will replace the existing furlough scheme from 1 November. The scheme offers a lifeline for businesses who have had to reduce activity or capacity, but are keen to retain their key workforce to future proof their business.
Designed to help keep people in ‘viable’ jobs, it will apply to those employees who are working at least a third of their normal hours. Employers will meet the cost of time worked at the employee’s normal pay rate. The employer and government will pay one third each of the employee’s remaining contractual entitlement, with the government’s contribution capped at £697.92 a month.
However, any grant payments will be paid by the government in arrears, so the employer must pay the employee their contracted wages for their hours worked plus the government and employer contributions for the hours not worked. The employer will then be reimbursed for the government’s contributions from December 2020, which will cause cash flow difficulties for businesses already struggling with the effects of the pandemic.
What else can I do to protect my business?
Short to medium term financial planning is absolutely crucial and being proactive will help reduce risk exposure. It is important to be alert to issues such as surplus stock, redundant services, and neglected facilities whilst being aware of opportunities to transition your business in line with the changing economic landscape.
You must stay close to your business, look out for the signs of stress and be prepared to make brave and often difficult decisions.
A robust invoicing and collections system must be at the top of your priorities list. During any downturn, the first reaction of any business is to focus on cash, paying creditors more slowly while also asking debtors to pay more quickly.
Don’t wait for your payment terms to be breached before checking with your client that your invoice has been received and is being processed for payment. As soon as you have delivered your goods or service, check with the client that they are happy and note any comments to provide a detailed record should you experience problems down the line.
Consider billing some customers upfront or asking for a deposit. Collect the cash and make use of the deferment of VAT options to pay later.
You can support the greater business economy by being flexible with your debtors, but do your research and check credit reports before extending payment terms. If you’re looking to work with a company with a poor credit score consider asking for a personal guarantee.
Have a back-up
If you’re reliant on a particular supplier, it’s wise to explore alternative sources to avoid the risk of sudden price increases or potential disruption to your supply chain should that supplier collapse. If you’re working on low margins or a tight turn-around on delivery of services, you will benefit from advance planning should you need to find an alternative quickly.
Take advantage of the latest government updates
If you are in receipt of the Bounce Back Loan, you now have longer to repay taking the maximum repayment term from six years to 10 years, essentially halving monthly repayments. There is also the opportunity to suspend all payments for six months in very specific circumstances.
Those receiving a CBILs loan will have their guarantee period extended to 10 years with more time to pay. The deadline for these loans is the end of 2020 and there are likely to be additional schemes announced in the New Year.
The Chancellor had previously announced the deferment of VAT bills and those businesses whose VAT payments fall in March 2021 will now have the opportunity to spread those payments over the next 12 months.
Changes to the Corporate Insolvency and Governance Act 2020 (CIGA)
Your business may benefit from the regulations issued by the Government to extend the period of applicability of certain temporary provisions introduced by CIGA at the outset of the pandemic, to aid struggling businesses.
These include extending the restrictions on the use of statutory demands and winding up petitions until 31 December 2020 and the extension of the prohibition on termination of supplier contracts by reason of insolvency until 30 March 2021.
If the future feels uncertain, swift and decisive action to exploit the support measures available whilst taking professional advice will ensure you maintain a viable business as we emerge from this crisis.
Sean Moran is a Corporate Restructuring & Insolvency Partner at Shakespeare Martineau. Sean’s practice is focused on restructuring & insolvency, covering complex investigatory work as well as transactional and advisory assignments. Find out more or get in contact with Sean here