Help for businesses with coronavirus cash flow problems

A business should try its best to keep its cash flow balanced to avoid becoming insolvent; where it doesn’t have enough cash coming in to cover what’s going out. Sadly, many businesses have suffered from cash flow problems because of coronavirus.

If your business’ cash flow has become unbalanced because of coronavirus and the related restrictions, there are ways to alleviate the problem, if you act quickly.

How coronavirus can impact cash flow

With takings likely down from pre-lockdown levels, and overheads still needing to be paid, cash flows can very easily become unbalanced. This is especially true when many businesses have had to spend extra on equipment like PPE for staff, hand sanitiser and shields for customers. Incoming work may have slowed, and payments for work completed could be delayed.

If you’re unsure whether or not your business is insolvent, you can take the three solvency tests, which considers your balance sheet, any legal action, and of course, your cash flow.

What are my options to deal with an impacted cash flow?

If the coronavirus has impacted your cash flow, there may be several options available depending on the insolvency’s severity and where you’d like to take the business.

Continue trading while managing your cash flow

Even if your business is insolvent, it may still be viable without its burdensome debts. There are several ways you can remove those debts while continuing to trade.

Voluntary Arrangements

Limited companies in England and Wales can apply for a Company Voluntary Arrangement (CVA). These are formal repayment arrangements, where the company repays its unsecured debts in monthly instalments at a tailored, affordable rate over five years. The process is managed by a licensed insolvency practitioner (IP), who becomes your creditors’ point of contact for the arrangement’s duration.

A similar process is available for self-employed sole traders and individuals, called an Individual Voluntary Arrangement (IVA).

Administration

If the company’s debts are more severe, and creditors are threatening further action, you can explore administration. This involves an IP taking control of the company, protecting it from its creditors while they make the necessary changes to save it.

Negotiate a Time to Pay Arrangement with HMRC

For debts specifically to HM Revenue & Customs (HMRC), such as VAT, PAYE, corporation tax or National Insurance, you can apply for a Time to Pay Arrangement (TTP). These spread your tax repayments over a period so they’re more affordable. The arrangements usually last between 6 and 12 months and are open to companies and sole traders.

You’re required to submit a proposal before a TTP can be approved, so speak to us if you would like to apply. We have a strong relationship with HMRC and years of experience in negotiating.

Commercial finance support

If what your business has in the bank won’t cover its outgoings, commercial finance may be a viable option to tie you over. For example, if your business is waiting on a lot of invoices from clients, invoice finance allows you to borrow against the value of those unpaid invoices. You could also sell your invoices to an invoice factoring company, who’ll pay a portion of the funds you’re due, and subtract their fee once the full amount is paid.

Government support

Many businesses who were doing well before the pandemic, suddenly found themselves in a position where they either couldn’t trade or had to drastically alter their daily operations. To help businesses through the coronavirus’ financial hardships, the government have provided several support schemes.

The Coronavirus Business Interruption Loan Scheme (CBILS) is one of these, which allows businesses to access loans from accredited lenders, with no personal guarantees for loans less than £250,000. There is also the Bounce Back Loan Scheme (BBLS), allowing businesses to borrow up to 25% of their turnover, up to £50,000. Bounce Back Loans are guaranteed by the government with no fees for the first 12 months.

Closing a company if cash flow is unmanageable

Occasionally, your company can have so little cash flow that continuing the business isn’t feasible. In which case, closing the company via a Creditors Voluntary Liquidation (CVL) may be your best option. During the process, employees are made redundant, trading ceases, and provided the directors aren’t found guilty of wrongful trading or trading whilst insolvent, the debts die with the company. CVLs can also ensure creditors see more of a return than if the company was wound up via a compulsory liquidation.

In summary

Coronavirus has had a knock-on effect on many UK businesses. With a reduction in trade and more expenses to comply with social distancing, the virus has led to cash flows becoming unbalanced, which, if left unaddressed, can lead to insolvency. Fortunately, there are several options to help your business rebalance its cash flow. Formal repayment arrangements, such as Company Voluntary Arrangements (CVAs) and Individual Voluntary Arrangements (IVAs) allow businesses to repay in monthly arrangements. Administration allows for more substantial reconstruction, and a Time to Pay Arrangement (TTP) allows businesses to repay outstanding amounts to HMRC. There are also commercial finance options available, alongside dedicated government financial support. Even if your company can’t be saved, you can still close it in an orderly manner via Creditors Voluntary Liquidation (CVL).

How we can help

If coronavirus has tipped your business’ cash flow in the wrong direction, and you need financial support, contact us today. We have a team of initial advisors, offering free, impartial advice with no obligation. They will assess your situation, guide you through the available options, and help you decide which is best for your business.

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