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With the latest government data showing growth in company insolvencies, Chris Bowers, a partner in the Insolvency and Debt team at Forbes Solicitors, looks at why it might signal a return to pre-COVID levels of director disqualifications.

The latest monthly Insolvency Service statistics show there were 2,315 registered company insolvencies in October 2023. This is 18% higher than the same time last year and followed reporting in September that revealed the highest number of insolvencies during the last two quarters since 2009. 

Data about firms going out of business often provides insight into tough economic conditions and trading challenges in particular sectors. This is undoubtedly true, however, growth in business insolvencies may also be indicating another sign that we’re heading towards a spike in how many company directors are disqualified. 

Unintended effects

Government support measures introduced during the COVID-19 pandemic helped companies avoid insolvency, at least in the short term. State-backed grants and loans provided businesses with quick access to finance that boosted cash flow to keep them afloat. Although this genuinely helped protect businesses from the disruption of lockdowns, it also papered over the cracks for already-failing enterprises. Unanticipated, one-off cash injections enabled struggling businesses to survive a little bit longer. 

Insolvencies are now increasing, in part, because COVID-19 lifelines have run out, and we’re seeing a similar unintended link between government pandemic support and a rise in director disqualifications. Several Bounce Back Loans were improperly acquired and used by individuals and the government is taking action to address this. 

Loan losses

It’s estimated that losses from fraud and error associated with the Bounce Back Loan scheme amount to £1.1billion. This is according to figures published in the Department for Business, Energy and Industrial Strategy’s annual accounts. These losses are being chased down by the National Investigation Service, police units across the UK and the Insolvency Service. 

Such action saw over 450 directors disqualified by the Insolvency Service between 2022 and 2023 for abusing COVID-19 financial support schemes. Enforcement action of this nature accounted for around half of all director disqualifications during this year. 

This upward trend is accelerating. Last year, an average of 38 directors per month were being disqualified for abusing COVID-19 financial support schemes. So far this year, the monthly average has reached 63 disqualifications, with a total of 438 directors already disqualified for allegations relating to abuse of pandemic financial support, according to Insolvency Service data for April to October 2023. Disqualifications of this type currently account for 67% of all disqualified directors. 

These recent trends suggest we’re heading for a spike in annual director disqualifications and a return towards pre-pandemic levels. Data from the Insolvency Service shows that during the decade from 2011 – 2021, the total number of director disqualification orders and undertakings averaged 1,238 per year. Annual figures have been lower since 2020, with disqualifications varying between 818 and 1,030 per year.

Based on current averages, total disqualifications for this financial year could top 1,100 and it’s reasonable to think the figure could be higher, as a tough crackdown on Bounce Back Loan fraud continues. 

Fraud vs. misuse

There have been high-profile cases of Bounce Back Loan fraud reported in the media, with various organisations aiming to make an example of people who exploited government schemes. There have been prosecutions of directors setting up fake companies to access loans and instances where these same companies have been quickly dissolved. 

What is less reported, and a factor that directors need to be aware of, is the differences between fraud and misuse. Lenders who administered the loans applied eligibility criteria, with part of this covering the usage of loan funds and the requirement for loans to provide an economic benefit to a business. ‘Misuse of facility’ is still likely to be flagged as fraud by lenders, and directors need to ensure they appropriately consider and address this. 

Undoubtedly, hundreds, and possibly thousands of directors will receive letters about Bounce Back Loans over the coming months, and we’re likely heading towards a spike in director disqualifications next year. The government is pressing hard to recoup losses and to also show that it will punish exploitation of its emergency measures. Directors need to ensure their interests are properly protected amidst mounting enforcement action.

About Forbes Solicitors:

Forbes Solicitors is an award-winning law firm, with 11 offices across England that looks after the interests of clients nationwide. 

The firm has 57 partners and an overall headcount of nearly 400, advising on a wide range of commercial and personal matters. Forbes specialises in supporting SMEs, providing legal expertise in practice areas including litigation, commercial, intellectual property, corporate legal services, employment and business immigration, insurance, commercial property, and individual services.  

Forbes holds the ISO9001 Quality Certification and in its recent assessment it was described as "exceptional". The firm is ranked as a Legal 500 Top Tier Firm and a Chambers and Partners Leading Firm, receiving 70 nominations in the latest editions. Furthermore, a number of its professionals are included in the elite "Leading Individuals" list, the "Next Generation Lawyers" list, the ‘Rising Stars’ list, and 38 of Forbes' solicitors are listed as recommended lawyers. Forbes is also a member of LawPact® - the international association of independent business law firms – which supports the expansion of its national and global reach.

Disorder and turbulence may result from this kind of susceptibility. Your duty as an administrator is to guide your team through these difficult circumstances and withstand the storm. 

Nevertheless, the strain might become intolerable if you don't have precautions and contingency plans for potential catastrophes. We'll consider 5 strategies you may use to deal with unfavourable workplace circumstances to help you overcome these obstacles while keeping your employees on track.

#1 - Communicate transparently

During emergencies, it is critical to communicate clearly and promptly. To keep everyone up to date, create numerous communication avenues both inside and outside routes. Ensure the information supplied is reliable, consistent, and accessible with frequent updates.

Your supervisors should have the final word on any ideas you propose. This will be very beneficial for analyzing and enhancing answers with each circumstance. Keeping everyone in the loop about incidents can help the team gain insight into the bad ones. To communicate efficiently and transparently, consider affording an emergency management degree, which will help provide the best resolution. 

#2 - Put employee safety first

During an emergency, you should put the security of your staff first. Ensure the employee's safety, take responsibility for all of them, and give them the required help. The instances of a physical crisis, like a fire, and a psychological emergency, like exhaustion or an emotional breakdown, can qualify as such. Observe the correct procedures for reacting to uphold the company's fundamental principles.

#3 - Set up an emergency response plan

Create a thorough strategy outlining positions, duties, and protocols for various situations. Ensure everyone on staff is aware of this strategy, and regularly run drills and exercises to evaluate its efficacy.

Have several meetings with different groups to start this process and discuss potential issues that might occur. Evaluate the most practical and effective methods to address these problems with these groups. Create thorough procedures that will be advantageous to all stakeholders.

#4 - Evaluate the situation diligently

To properly comprehend a crisis or disaster's effects, get the correct data. Analyze the hazards, the resources at hand, and possible outcomes. This knowledge will guide your decision-making, and it will assist you in creating an adequate response. Finding ways to figure this out can help you deal with such complex scenarios most successfully.

#5 - Gather learnings from the experience

After the emergency has been addressed, take time to reflect on it and draw lessons. Perform a post-incident assessment to find out what worked well and what needed improvement. Use this information to improve and modify your emergency management strategy.

Managing emergencies and catastrophes calls for an amalgam of leadership, planning, and adaptation. These 5 strategies can help managers steer their people through challenging situations, mitigate the implications of emergencies, and emerge victorious. Your management choices have an immediate influence on the mental and physical health of your employees as well as the overall viability of your business.

 

Experts such as Dutch bank economist James Smith and the International Monetary Fund (IMF) have warned the public and businesses alike of the possibility of an economic downturn. Furthermore, fintech giant Klarna recently announced that it would be firing 10% of its staff in preparation for this outcome. With this not-so-promising outlook, what can businesses do to survive an economic crisis?

1. Consider Going Remote

In 2020, the world witnessed a historic shift in the job market as the covid-19 pandemic forced many businesses to close their doors and their employees to begin working from home. This initial forced trial has since convinced many businesses to go remote for good, abandoning their offices altogether, and thus saving significant sums of money in the process.

Data from Global Workplace Analytics suggests that companies can save an average of $11,000 (approximately £6,800) per year for every employee who spends half of their time working from home. The key factors behind this figure are increased productivity, lower real estate costs, reduced absenteeism, and reduced staff turnover. 

Telework savings calculator

Source: https://globalworkplaceanalytics.com/telecommuting-statistics

2. Keep Up The Marketing

While your business might be looking for areas to reduce spending, marketing shouldn’t be one of them — or at least not too drastically. Amid a recession, businesses should do whatever they can to stay front-of-mind for customers. At a time when consumers will be cutting back on spending, you need to remind them that your product or service is important to them —  it’s something that they need. As well as maintaining marketing strategies that are already working for you, businesses should also consider:

However, it’s important that businesses keep their message and approach considerate during difficult times. Being pushy may secure sales in the short term, but coming off as insensitive will likely tarnish your reputation in the long run.

3. Protect Cash Flow

A recession will see your profit margins slim, making it increasingly difficult to maintain a healthy cash flow. Some effective options for cushioning your cash flow include: 

Wrap Up

Recessions pose a major threat for businesses, especially those that are small and/or still new to the scene. However, an economic downturn doesn’t necessarily spell the end. With a careful plan of action, businesses can come out stronger on the other side.

Disclaimer: The information contained within this article is for educational and entertainment purposes only and should not be considered as personalised advice or recommendation.

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But how do you do that when there is so much to handle? After all, you need to ensure that all employees are paid on time, that your inventory is well-stocked, and that you have enough cash flow to keep the lights on. The key to proper business finance management is organisation and planning. If you find it challenging to keep your business finances in check, consider using some of the following tips to get yourself on track.

Keep A Close Eye On Your Cash Flow

One of the most critical aspects of business finance is cash flow. This is the money coming in and going out of your company daily. You need to understand your cash flow to manage your finances correctly. Several software programs and apps can help you track your cash flow, so take advantage of them.

Also, with cash flow, you need to be proactive, not reactive. You can set up a system to log all incoming and outgoing payments. This way, you'll be able to see exactly where your money is going and make adjustments accordingly.

Get A Loan Only When Necessary

One of the biggest mistakes small business owners make is taking out loans when they're not necessary. Loans should only be used as a last resort, as they can put your business in a difficult financial situation. If you need to take out a loan, shop around and get the best interest rate possible.

There are many different ways to finance your small business. Be sure to explore all of your options before taking out a loan. If you decide to get a small business loan, you may want to talk to a reliable commercial finance broker to get the best deal possible. Plus, they can negotiate on your behalf to get you the best possible interest rate. They often have access to lenders that offer more favourable terms than banks.

Create A Budget And Stick To It

One of the best ways to manage your business finances is to create a budget and stick to it. It may seem daunting, but it's pretty simple. Start by looking at your income and expenses for the past year. Then, create a budget based on this information. Include a buffer for unexpected expenses and some wiggle room for your monthly expenses.

Once you have your budget created, be sure to stick to it. It might not be easy, but it's important to remember that your budget is designed to help you save money. If you find yourself struggling to stick to your budget, consider using some of the cash flow tips mentioned above.

Get A Handle On Your Inventory

Another critical aspect of business finance is inventory management. If you're not keeping track of your inventory, you're losing money. Period. That's why it's essential to have a system that allows you to track what you have in stock and what needs to be ordered. Several software programs can help you keep track of your inventory levels. Also, consider hiring an inventory management specialist if you find it challenging to keep track of your inventory on your own.

Keep Track Of Your Receivables

If you're not keeping track of your receivables, you could be in for a nasty surprise. Receivables are the payments that you've invoiced but have not yet received. To correctly manage your business finances, you need to keep track of your receivables and pay them on time.

You can track your receivables by setting up a system where all invoices are logged. This way, you'll see which invoices have been paid and which ones are still outstanding. You can also set up reminder emails or text messages to help you keep track of your receivables.

Use Financial Reports To Your Advantage

These reports can be a great way to handle your business finances. These reports can show you where your money is coming from and where it's going. This information can be beneficial when making financial decisions for your business.

To create financial reports, you'll need to use accounting software. This software will allow you to track all of your income and expenses and generate reports. Be sure to take advantage of the available reports, as they can be a great way to handle your business finances.

Have A Separate Business Bank Account

It's essential to have a separate bank account for your business. It will help you keep track of your business expenses and income and help you manage your cash flow. Having a different business bank account will also make it easier to get a business loan, as lenders will look at your business bank account when considering you for a loan.

Have A Plan For Slow Periods

All businesses have slow periods, so it's essential to have a plan for how you'll manage your finances during these times. One option is to take out a line of credit or resort to inventory financing. It can give you some breathing room financially, and you can use it to cover expenses during slow periods.

Another option is to create a reserve fund. This is a fund that you can dip into when times are tough. To create a reserve fund, start by setting aside a portion of your profits each month. Then, only use this money when necessary.

Spread Out Tax Payments

If you have a lot of taxes to pay, it can be helpful to spread out your payments. This way, you won't have to come up with a large lump sum of money all at once. You can arrange quarterly tax payments by setting up an instalment plan with the IRS. You'll need to fill out Form 9465 and submit it to the IRS. Be sure to include your estimated tax liability on this form.

You can also make estimated tax payments throughout the year by filling out Form 1040-ES. This is a good option if you expect to owe more than $1,000 in taxes. 

Managing your business finances can be a challenge, but it's vital to ensure that your finances are in order. Create a budget, track your receivables, and use financial reports. You should also get a loan only when necessary and have a plan for slow periods. By following these tips, you can get your business finances on track.

 

How Will Unincorporated Businesses Be Affected?

The basis period reform will impact those with unincorporated businesses, whether they are a sole trader or a member of a partnership, with accounting periods not ending on either 31 March or 5 April. In introducing the changes, HMRC is looking to prepare for the move to Making Tax Digital by creating a simpler system with a single set of rules for taxing profits and removing the complex rules relating to basis periods and overlap profits.

 The 2023/24 tax year will represent a transition period, where individuals will be taxed on profits for the 12 months to the accounting period which ends during the tax year, plus those from the end of the previous accounting period to 5 April 2024. In the transitional year, HMRC will require tax ‘up front’ on the profits arising in the period from the accounting year-end to the end of the tax year. In effect, this means that there are likely to be significant increases in an individual’s tax liability and careful cash flow planning will be important to ensure this can be funded.

Overlap profit

It's worth bearing in mind that individuals can relieve any overlap profit that they have brought forward. The profit for the 12 months to the accounting period ending in the tax year is referred to as the ‘standard profit’, while the profit from the end of the accounting period to 5 April 2024, is the ‘transitional profit’. The overlap relief is deducted from the latter.  This net profit or loss is then aggregated with the profit or loss realised in the standard period.

Individuals can mitigate the cash flow impact of the basis period reform by spreading the profits earned during the transition period. Where the transitional profits minus the overlap relief brought forward results in a taxable profit, the individual can spread it over a maximum of five years, beginning with the transitional year itself. The Finance Bill 2021-22 also introduced a facility to accelerate the recognition of profits spread in this way. This allows an election to be made for additional profit allocation to kick in at any point during the five-year period. The election must be made within 12 months of the self-assessment filing date for the tax year in which the taxpayer wishes to recognise the additional profits.

Effective tax forecasting

Effective tax forecasting is important for sole traders and members of partnerships; giving them a better understanding of when their tax liabilities will fall, so they can plan ahead. It’s important to be aware that individuals must continue to be self-employed in order to spread profits in this way.  As such, those planning to retire in the near future should seek advice.  Likewise, where the net position is a loss, advice should be sought at the earliest opportunity.

 From 2024/25, the profits of sole traders and members of partnerships will be taxed on a tax year basis. Although it may be simpler in the vast majority of cases, there will not be a requirement to change the accounting year-end.  For example, for those with an accounting period ending 30 June 2024, three months’ profits from the 30 June 2024 accounts and nine months’ profits from the 30 June 2025 accounts will be taxable in the 2024/25 tax year. This means that businesses will have to estimate their profits from the end of the previous accounting period to the following 5 April. Once the accounts to 30 June 2025 are complete, businesses will be required to amend the previous year and report the actual taxable profit that arose during the nine months to 5 April 2025. An amendment to the earlier year will be required for each tax year where the accounting period does not fall in line with the tax year. 

Final Thoughts

HMRC’s basis period reform could see some individuals calculating their tax liability based on almost two years’ worth of profits in one tax year, placing pressure on their cash flow position. By staying abreast of the new rules and planning ahead, unincorporated businesses can prepare to mitigate the cash flow impact of the new rules when they’re introduced. 

About the authors: Amy Cole is a director and Rachael Smith is an assistant manager at accountancy firm, Menzies LLP. 

The most popular debt that people often consolidate is credit card debt, usually because it has very high-interest rates. However, people can also consolidate other types of debts, such as payday loans, personal loans, and medical bills, so how do you settle on a debt consolidation loan lender?

Is It A Good Idea To Consolidate Your Debts?

A debt consolidation loan is a personal loan, in most cases, not everyone has the creditworthiness to qualify for such a loan. First, you’d need to check if you’re eligible for an affordable personal loan. Second, depending on the amount of debt loan and company (lender), a debt consolidation loan might be expensive in the long run. For instance, taking a debt consolidation loan allows you to pay it back to only one lender. You might be making large payments over a long period, which may result in you paying in the long term.

Lastly, if you’re finding a challenge in paying back your current debts, will you be able to afford to pay the debt consolidation loan? You need to scrutinise your income and see the money you have and whether you’ll comfortably afford the debt consolidation loan repayments. 

When Is A Debt Consolidation Loan A Good Idea?

A debt consolidation loan is a good idea if:

If you feel that the debt might be another challenge, the best thing to do is talk to a financial advisor before you make any move.

How Do I Choose A Debt Consolidation Loan Lender?

Since debt consolidation does not come for free, you need a debt consolidation loan that fits within your budget and helps you meet your financial goal of eliminating debt. Before giving you a loan, many lenders often pre-qualify you without inquiring into your credit. Information from pre-qualifications can give you an idea of the loan amount, rate, and term you could qualify for should your application be approved. 

To choose a loan consolidation lender, you can use the pre-qualification information to compare your options and decide on the lender that's best for you based on different factors such as:

Endnote

If you decide to consolidate your debts through a debt consolidation loan, it’s important to take your time to research your options. Make sure the loan will fit your budget demands and help you eliminate debt. Don’t settle for a high APR that might affect your overall financial goals.

Fantasia did not repay a bond that matured on Monday. Ratings agencies have downgraded Chinese developers Fantasia Holdings as Sinic Holdings over risk from their limited cash flow.

The developer has halted trading of its share since Sept 9 until further notice, with those shares plummeting almost 60% year-to-date. However, the fallout from Fantasia would be small in comparison with the potential fallout from Evergrande, the world’s most indebted property developer with liabilities of $300 billion. According to the company’s first-half financial statement, Fantasia has total liabilities of $12.8 billion. 

Since Evergrande’s debt crisis surfaced, China’s property sector has come under the spotlight. Evergrande has twice warned that it could default, triggering widespread concern from investors. The company has missed interest payments on two US dollar offshore bonds so far and has been hurriedly attempting to raise cash to pay off investors and suppliers. 

Other Chinese property developers have also been hurriedly attempting to raise cash, signalling further distress in the industry.  

Most small business owners aren’t accounting experts and are happy to use whatever tools they are familiar with to track their expected payments. This might be a messy notebook with illegible handwriting where thousands could be lost just because someone couldn’t read a number correctly. 

Many use spreadsheets, which is great for hypothetical planning but can only provide a snapshot of outstanding accounts receivable at a given moment. Maintaining control over all of the processes around collecting and recording payments quickly becomes an overwhelming task. There are many examples of a simple formula mistake leading to massive consequences – such as Reinhart and Rogoff’s, which ultimately changed policy around the world.

Hiring a dedicated resource is a luxury many solo upstarts cannot afford, so they muddle through it themselves and drain their motivation. The brainpower that should be used on growing their business is being wasted on formatting spreadsheets instead.

Many apps can help to streamline the process and reduce the headache for business owners though they may be reluctant to try. In the short term, it’s deceptively easier to stick with what you know even though better methods exist. This is why the apps you choose to help you accomplish anything in business must be simple, intuitive and integrated – otherwise, they just add to the challenge at hand.

One good example of a solution with a speciality in accounts receivable is vcita, a platform that’s been working with small businesses for over a decade and takes into account just how busy the owners are. And because vcita is a versatile business management platform that includes modules for client communications, appointment scheduling, lead nurture and document sharing, the accounts receivable functionalities are all the more useful.

When it comes to accounts receivable processes, growing small businesses need to issue invoices, collect payments, automate reminders and run reports. But these are just the basics. When everything is built to work together with your CRM, messaging engine and service booking system, the value is compounded, because there’s nothing you need to integrate yourself, and the information is all where it needs to be.

Here are three ways companies can use vcita’s platform to reduce friction in their accounts receivable processes.

Cash flow drill-downs to the individual customer level

Maintaining individual relationships once a company starts to scale can be a nightmare. Correspondence might be all over the place in emails, calls, texts, document comment threads and anywhere else. It’s hard for businesses to track the invoices they’ve sent and whether they’ve followed up. They might invent a manual process that only needs a small human mistake to ruin a client relationship.

It can lead to embarrassing situations where a client has been asked for money they say they’ve already paid but you can’t match the payment. A client might slip through the cracks where everyone thinks an invoice has been sent but no one is quite sure, and the company bleeds money silently.

Software providers like vcita make this whole process far simpler. Every transaction and interaction with every customer is displayed in one timeline thread where you can see exactly what services have been delivered, what appointments have taken place, what messages and files have been shared, whether invoices have been sent and whether corresponding payment has been received. 

It means that when companies talk to customers, they can do so from an informed point of view rather than asking questions you should already know the answer to. Some companies will love the ability to set up automatic payment reminders, so you don’t have to ever personally bother customers for money.

Segmenting data to reveal what you need to know

Many DIY spreadsheets used by small business owners are a mess. They add columns and formulas as they need them, so it becomes more and more cluttered. As specific situations change throughout the day, keeping the data updated can quickly become unwieldy. What’s more, a simple formula mistake can cause huge relationship damage. 

This makes it hard to get a good overall picture of how business is going. Business owners can’t be blamed for procrastinating decluttering until tax season arrives. Then it’s a mad scramble to make sure all the details are correct to avoid a hefty fine.

vcita makes this easy by providing beautiful displays in a way the average spreadsheet user just couldn’t do. Owners can have a dashboard where they can see payments at a glance and filter by status. They can see how much money they are awaiting at the click of a button rather than all the manual steps needed for whatever self-made system they are using.

Your dashboard is updated in real time which can be a life saver as potential problems can be identified early before they get out of control. It makes it far easier to manage the collection of money and stay afloat, and you can even export your data slices for sharing with accountants, financial advisors and other apps.

Auto-populating invoices with services rendered

Invoices are crucially important to the functioning of a small business. The later an invoice is sent, the later the money comes in and the harder it is to deal with all the expenses in the meantime. It’s an opportunity to show professionalism and create a longer-lasting relationship with a client. Something hacked up in Microsoft Word with poor formatting makes a company look amateur and makes clients take them less seriously.

Typing out an invoice by hand leaves so much room for human error and the reputational damage that follows. No one wants to receive a bill larger than they expected and it’s hard to overturn this negative feeling. When you build a new invoice draft with vcita, you can automatically pull in all of the services you’ve delivered since the previous invoice, which makes it easy to catch up on everything due.

It takes only a few clicks to create and send a monthly invoice to the client from within the app. Alternatively, you can set it up to invoice customers every time a service is booked or an appointment is scheduled, even making payment a required prerequisite to ordering these services. Customers can also choose to securely save their payment details in the system, where the merchant won’t have access to any of it, for faster subsequent payments.


This simplicity means business owners can send their Pro-forma invoices, payment requests and receipts faster rather than needing to dedicate time to go through a painful process of manually calculating the sums and formatting everything to look nice and tidy.

One of the more advanced features here is the ability to add a one-click payment button to email invoices. By making the task so easy for customers, it means there is less resistance to paying on time, leading to faster payments. You can also request payment by simply texting a link.

More time for the fun stuff

By speeding up the accounts receivable process, business owners can spend more time on what they really want to do, while tech handles the administrative-financial work. 

Business owners can have peace of mind knowing their clients will have a professional perception without all the manual labour it would otherwise take. Accounts receivable is a critical part of any business, and it’s understandable to be hesitant about using unfamiliar software. Yet solutions like vcita are battle-tested and can make all the difference.

Nic Redfern, Finance Director at Know Your Money, offers Finance Monthly his advice for businesses ensure stable debt repayments.

It has been a hugely volatile year for UK businesses. The coronavirus pandemic has caused unprecedented economic turbulence, which continues to threaten many companies, as well as the job security of millions of employees.

Despite the Government putting in place substantial support packages to help businesses weather the storm, employers are still plagued with uncertainty. Indeed, 46% of businesses have seen demand for their services fall due to COVID-19, according to a recent survey of over 530 businesses conducted by KnowYourMoney.co.uk.

The research also showed that, with sales declining and cashflow issues rife, over a third (38%) of UK companies have taken on more debt in 2020. Of course, taking on debt can be beneficial to businesses – it can support growth or ensure survival – but failure to effectively plan for repayments can pose some serious problems in the future.

Unfortunately, planning for the future is hard at times like these. In fact, according to KnowYourMoney.co.uk’s study, over half (56%) of British businesses are struggling to make any long-term financial plans due to the uncertainty surrounding the pandemic. The fact a second lockdown has been announced since this survey was conducted will likely have made matters worse.

However, even amidst such disruption and uncertainty, there are steps that can be taken to help businesses get to grips with their debt repayments.

Take an inventory of the debt

Firstly, business leaders should make a note of all their debts. These will range from large repayments such as business loans and lines of credit, to smaller expenses, like business credit cards. This process will help employers understand which debts to confront first and where cuts can be (or need to be) made, thereby simplifying the repayment process.

Of course, taking on debt can be beneficial to businesses – it can support growth or ensure survival – but failure to effectively plan for repayments can pose some serious problems in the future.

In most cases, it is beneficial for businesses to prioritise repaying debts with the highest interest rates. This is because the longer it takes to pay off high-interest debts, the more a company will end up paying in the long term; tackling this debt early on will help to reduce long-term expenditure.

This exercise is particularly important for small and medium enterprise (SME) businesses, as they tend to face higher interest rates and shorter repayment timeframes. This is largely because UK SMEs' cash-to-debt ratio has been declining over recent years, meaning they find it harder to keep up with debt repayments. So, organising debts as early as possible will certainly help such smaller firms to avoid late payments, which could jeopardise their survival.

Choosing a debt reduction strategy 

Once the debt inventory has been completed, employers can look to develop a sustainable debt reduction strategy. The most basic form of debt reduction is the spartan approach. This involves the business limiting their spending to the bare necessities until the debt is repaid. However, this hard-line strategy might not give businesses the flexibility they require to run effectively.

Another popular option for businesses is to refinance debt. This typically means taking on a new loan in order to pay off existing debt. It can be a way of consolidating multiple debts into one manageable repayment, or to secure a lower interest rate. This is a particularly useful strategy for business owners with a good or excellent credit score. However, consolidating debt, even at a lower interest rate, can cost you more in the long term if you extend the term of your loan(s).

That said, refinancing a loan can come with complications; for example, some lenders may impose penalties on businesses who fully repay their debts earlier than agreed. Thus, employers should read the terms of existing loan agreements, before committing to this strategy.

Cutting costs  

Employers must also develop a sustainable budget and identify where savings can be made to finance repayments. This may seem like an obvious step, but some businesses may be unsure where to begin.

A good starting point would be to review which office equipment is not used as often as it could be; for example, laser printers or seldomly used office furniture. Employers could look to sell-off such expensive items. Additionally, they may consider purchasing second hand items in the future or shopping around for cheaper suppliers; it may not seem like a big step, but employers may be surprised by the savings they could make in their operational costs.

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Alternatively, businesses owners might consider moving to smaller premises where rent and utility costs would likely be cheaper. Indeed, moving to co-working spaces, or even making the move to permanent remote working could present scope to make further savings.

Of course, no two businesses are the same and certain cost-cutting measures will suit some more than others. So, employers should take their time when assessing their outgoings to understand which cuts, they can make without endangering the business.

Seek advice when needed 

These are trying times for businesses everywhere – even for some of the largest and best-prepared of corporations – and, at times, getting the organisation’s finances in order might seem like an insurmountable challenge. In many cases, therefore, I would recommend that business owners seek further advice.

Depending on the needs of the particular organisation, owners might look to business consultants, accountants, specialised credit counsellors or financial planners for some more focused assistance. These experts are able to assess all elements of an organisation and develop a tailored strategy to suit the businesses specific needs. Especially during difficult economic periods when businesses might seek to pool their resources, this can be a great source of help when navigating debt.

All in all, business owners should remember that they do not have to weather the storm alone. With sound advice and perseverance, companies should be able to lessen their financial burdens, and find a workable and personalised repayment strategy.

Daniel Groves outlines five key steps SMEs can take to keep their finances secure.

Money problems come in all shapes and sizes, but more often than not the biggest financial issue which can make or break a small business is cash flow. Studies have shown that more than 80% of small businesses fold as a result of poor cash flow. These mistakes are easy to avoid, if you plan for them before they become a problem.

Make sure bills are paid on time

It might sound obvious, but never underestimate how important it is to pay your bills on time. Not only does this mean they won’t go up in cost due to interest charges but missed payments can also affect your credit rating, storing up all manner of issues further down the line. 

Technology is your friend in making bill-paying as frictionless as possible. For regular bills, set up a Direct Debit to save you time and money. If you’re unsure what digital tools your bank has to help you pay your bills, talk to them. It is in their best interest to make sure that you are on top of your funds.

Save for emergencies

In these increasingly uncertain times, it is vital that you put some money aside for unforeseen emergencies. It is in your best interest to have an emergency rainy day fund. Problems will - and do - come up, and often the best way to keep your options open when trouble strikes is to have funds readily available. A good way of doing this with minimal effort is taking 10% of your profit each month and moving it to a separate bank account.

Now is also a prudent time to look at your company's outgoing expenditures and cut back. Instead of travelling for a face-to-face meeting, save time and money (and stay safe) by hosting that meeting online. You can then take those saved expenses and place them in your emergency fund account, away from the money you use for running the day-to-day.

Problems will - and do - come up, and often the best way to keep your options open when trouble strikes is to have funds readily available.

Keep a close eye on payments owed to you

It is very easy when running a small business to get bogged down with the day-to-day operation and not keep track of unpaid customer bills. Sending out an invoice is one thing, but it’s quite another to make sure it has been paid on time and to chase if it hasn’t. There are great tools and software which can automatically send reminders to chase late payments, helping you avoid escalating it to a legal issue. This, in itself, can be a lengthy and expensive process. 

You are running a business, not a charity. So make sure you are paid what you have worked or you won’t be in business for very long. 

Get help if you need it

Staying afloat can be extremely hard for a small business in any industry - asking for help isn’t a sign of weakness. If you’re struggling to chase payments or keep track of them, it’s better that you get help (either from technology or a trusted adviser), so you can focus on creating value for your customers. Financial worries can put real strain on business owners if they don’t have experience trying to manage it. 

 “Whatever you do, please don't do it alone,” says Jeremy Frost of Frost Group, a company specialising in business advice for companies struggling. “It can be a frightening time for you but it is possible to solve business problems, especially cash flow issues. If you concentrate too much on the minute details of a problem you miss the big picture.”

Track your financial statements

It is key that you pay close attention to your financial statements. Carefully follow what is going out and what is coming in. If you don't know how to read a financial statement, you can use online guidance to learn as soon as possible. Alternatively, you could employ someone to read it for you if it’s really not one of your strengths or you want to free up some mental processing power to continue to grow your business. Do this by hiring a freelance account manager, rather than bringing a full-time financial team in-house. 

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Final thoughts

It is better to be in control of your finances at all times so that you can react and solve any problems before they escalate. Every company will have one month where their outgoings surpass their incomings but it is up to you to see it, identify why that has happened and make sure it is not a regular occurrence. Don’t assume these issues will just go away. 

Invoice factoring companies offer significant assistance to businesses that handle a large volume of outstanding invoices. These entities help ensure continuous cash flow, thereby making the business more easily sustainable. They do this by taking care of the debt collection function for you. They get direct payments from your customers and forward the money to your account after deducting their fees.

Not all factoring companies can respond effectively to your business’s unique needs, however. In this article, we present the factors that you should look into before you pick the factoring company that you are going to partner with.

Float Period

Almost every factoring agreement has provisions regarding the float period. The float period is the amount of time that you have to wait before a customer’s payment gets posted on your account. Usually, float periods last up to the three days since the payment is made.

The waiting is going to be an issue if it is stipulated in your contract that the factoring fee increases as the outstanding invoice ages. We shall talk more about this when we discuss pricing below.

To illustrate, suppose the contract states that the factoring company can charge 1.5% of the invoice amount for invoices that had been outstanding for 16 to 30 days, and 2.5% for invoices that are 31 to 45 days old. A payment that has been made on the 29th day will only be posted on the 31st day, which puts that particular invoice in a more expensive bracket. This can lead to a significant increase in your financing expenses.

If possible, negotiate with the factoring company to reduce their float period. If you can find one, it will be much better to deal with a company that does not make you wait before they post payments that they received.

Pricing

Generally, the price of a factoring service depends on three major factors: the total amount of the invoices, how long the invoices have been outstanding, and the credit quality of the customers. As much as possible, avoid companies that have lots of ancillary fees.

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Economies of scale still work in factoring deals. Since many of the expenses associated with the maintenance of the factoring relationship are somewhat fixed, you get more value for money as the invoice value gets bigger and bigger.

The age (in days) of the outstanding invoices matters because this is also the length of time that the factoring company’s money is out. Clearly, the risk of an outstanding invoice not being paid rises with time.

Finally, the credit quality of the customers matter because this represents the likelihood of the money being returned. If your company’s customers have generally bad credit ratings, then you should be ready to pay more to compensate for the risk that the factoring company is going to take.

Customer Service

Factoring relationships clearly involve money, and things can easily go wrong when money is at stake. Due to this, it’s important that you choose a factoring company that is represented by people who are approachable and easy to talk to, making it easier for you to communicate and make requests whenever necessary.

Choosing the right factoring company isn’t overly difficult, but it’s still something that you need to do systematically. Presented here are just three generally more important aspects. There might be others that are unique to your niche or industry.

Chris Brooks, CFO at Modulr, offers Finance Monthly their perspective on how businesses can turn payments to their advantage in fraught times.

As the Chief Financial Officer at Modulr and someone with over 15 years’ experience in the finance industry, I’ve witnessed a great deal of change in the way businesses manage their payments. But to date, no period has been as transformative as the one we’re entering right now.

For decades, small businesses have been let down by their payment processes. That’s because the majority rely on outdated, manual and inefficient payment services from traditional banks with legacy IT systems. The problem is compounded by the inefficiency of banks when disbursing loans, which are often critical to getting small businesses off the ground. In fact, some small business owners claim to have been left on the verge of collapse after the amount of time taken to process their bounce-back loans.

Sometimes it takes a crisis to shake businesses out of apathy. COVID-19 has shone a light on payment inefficiencies and highlighted the urgency of digitalisation.

Fortunately, fintechs are flourishing across the UK and providing new technologies that could transform the payment space. Here are three areas where payments innovation could help businesses become more resilient, future-proof and competitive.

Sometimes it takes a crisis to shake businesses out of apathy.

1. Maintaining security and business continuity

When COVID-19 led to sudden and widespread remote working, it starkly exposed the hidden inefficiencies in existing processes. Companies that were stuck in the old, manual way of managing payments suffered major disruption. While those that were ahead of the digitalisation curve managed to maintain business continuity.

In the accountancy space, many practices had already embraced cloud computing and payments automation. They were able to make the transition to remote working seamlessly – accessing client workflows from home and managing payments through centralised portals like Sage Salary and Supplier Payments, just as they would in the office.

But we’ve also heard from accountants who, prior to the crisis, had still been in the habit of driving to their clients’ offices and picking up folders of paperwork. Many more were doing things digitally – thanks in part to Making Tax Digital - but not in a completely centralised way, which required the ad-hoc sharing of files across insecure methods like email or third-party file transfer systems.

These workarounds are highly problematic in a time of crisis. Fraudsters will actively seek to exploit new vulnerabilities. According to UK Finance, Authorised Push Payment (APP) fraud cost UK businesses £138.7m in 2019. Only £33.8m was reimbursed. And since COVID-19, we’ve seen the emergence of entirely new scams and techniques.

Fortunately, new payment technologies such as Confirmation of Payee (CoP) are being introduced to help businesses safeguard funds. With CoP, payment service providers (PSPs) will be able to check if the name of the individual or organisation entered by the payer matches the identifying information of the account paid. This can prevent consumers and businesses from being tricked into pushing funds to a fraudster’s account.

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2. Reducing operational costs

As businesses seek to recover from the impact of COVID-19 and navigate this tough economic environment, finding ways to maximise efficiency and reduce operational costs will be critical. This is especially true for businesses that have furloughed employees and are forced to work with leaner teams.

Manual payment processes are a heavy burden for finance teams in today’s fast-paced, challenging environment. They waste time, incur errors and result in significant administrative costs. That’s why fintechs are developing sophisticated solutions that allow businesses to automate all aspects of the payments workflow.

A good example is payment splitting. This is when a business receives an incoming payment, divides it based on a calculated percentage, and sends two payments out to end beneficiaries. When done manually, it’s a time-consuming process. But automation offers a powerful solution, allowing payments to be split automatically based on customisable rules.

Imagine a property management business that’s collecting rent from tenants. Rent collections are typically complex and unwieldy, as payments are sent to the estate agent’s bank account and then manually reconciled and split before sending funds to the landlord. But with automated payment splitting, rules are set to automate the amount collected and sent on – drastically cutting down admin time and reducing operational costs.

That’s just one example of the power of automation. It can have a significant impact on all aspects of payments – receivables, payables, collections and disbursement. Not only does this reduce operational costs, it can help businesses to maintain payments continuity when employees are forced to work away from the office.

3. Improving cashflow management

Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.

Faster Payments is a relatively new scheme compared to traditional methods like Bacs, but it’s already having an immense impact on UK commerce and business uptake is likely to accelerate. Initially designed to speed up the payment process for retailers, Faster Payments are meant to clear in less than 2 hours, though this is often far lower; at Modulr we’ve reduced it to seconds. This is a major improvement on Bacs payments, which can take up to three days to clear, meaning funds are held in limbo for that time period.

Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.

The impact of using Faster Payments can be far-reaching. By allowing just-in-time payments and the ability for a business to hold onto cash right down to the very second, Faster Payments enables greater control, visibility and forecasting of cashflow throughout the year. Finance teams can more accurately predict what cash they will have and when, and plan to pay invoices at strategic times. This will be increasingly critical as businesses strive to recover from the impact of COVID-19.

To summarise; technology is going to continue disrupting all areas of business. And the same goes for the payments industry. New solutions being developed by fintechs can help companies to improve cashflow management, significantly reduce operational costs and protect their money.

With such a challenging and uncertain economic environment in the months ahead, there’s never been a bigger incentive for change. Companies are faced with a critical choice – to keep relying on slow, outdated payment methods, or overhaul everything and find better ways of moving and accepting money. By choosing the latter, businesses can boost their resilience and weather future storms. And those that move first might that find payments become their competitive advantage.

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