Finance Monthly hears from Menzies LLP business recovery partners Simon Underwood and John Cullen on how owner-managers can overcome restart anxiety.
During the pandemic, a £407 billion support package has enabled many UK businesses to maintain a healthy cashflow and survive to fight another day. However, with the end of Government support on the horizon, many owner-managers may be experiencing ‘restart anxiety’ and be putting off the important decisions needed to future proof their businesses.
By spotting financial red flags and conducting effective scenario planning, owner-managers can take steps to turn their fortunes around and improve their chances of performing successfully when they reopen. They should also investigate their eligibility for the Government’s new Restart Grant, which could provide them with a much-needed cashflow boost over what may be the final few months of lockdown restrictions.
Owner-managers that fail to prepare for the end of coronavirus business support measures could be facing a cliff-edge scenario in a few months’ time. Being able to spot key signs of business stress is essential, allowing them to take action to improve their financial position and rebuild a stronger business.
For example, if owner-managers seem to be spending more time worrying about the business than they do running it, have noticed a dramatic drop in revenues or have paid dividends without sufficient reserves to cover them, action might be needed before it’s too late. Other signs of trouble could include a lack of communication with creditors or an inability to pay debts on time.
Scenario planning can help owner managers to get back on the road to recovery by planning for a number of ‘what if’ scenarios. Three-way cashflow forecasting involves combining a business’ profit and loss accounts, balance sheets and cashflow. In the current uncertain economic environment, this tool can help to facilitate informed decision-making about the business’ future by improving the visibility of costs across the company. This type of cashflow management can also help to convince creditors to flex their payment terms by providing them with greater confidence about when payments can be expected.
Scenario planning can help owner managers to get back on the road to recovery by planning for a number of ‘what if’ scenarios.
To understand if they will be able to operate sustainably once Government-backed support such as grants, loans and the furlough scheme come to an end, business owners must be able to assess their long-term viability. To do this, they should ask themselves questions across four key areas; cashflow, innovation, communication and protection.
For example, questions around cashflow might include asking whether there is enough cash in the bank to pay any outstanding bills and whether there are any outstanding debts that could be called in. ‘Innovation’ should include a consideration of areas such as whether the business is doing enough to adapt to the new normal for its marketplace and take advantage of areas of demand, such as eCommerce. Key questions around communication might include asking how regularly owner managers are keeping in touch with key customers and suppliers, and whether the business is reaching out to lenders if it’s experiencing cashflow difficulties. Finally, ‘protection’ questions might include whether the company has the right insurance cover, including unrestricted business interruption insurance, and whether the owner manager understands their options if the organisation is in cashflow difficulty.
Announced in the Budget on 3 March 2021 and introduced from April, the Government’s new Restart Grant could provide around 700,000 UK business owners with an injection of cash during what is hoped to be the final stage of lockdown restrictions. Replacing the monthly Local Restrictions Support Grant, which closed at the end of March, the grant is aimed at helping businesses that have had to close as a result of lockdown restrictions during the pandemic through to 21 June – the date currently in place for the lifting of lockdown restrictions in England.
Under the scheme, non-essential retail businesses can claim up to £6,000 per premises to help them reopen, while those in hospitality, accommodation, leisure, personal care and gyms can receive up to £18,000, depending on rateable values.
To be eligible to claim under the scheme, businesses must be based in England, occupying property on which they pay business rates and must have been required to close because of the national lockdown from 5 January 2021 onwards, or between 5 November and 2 December 2020. The business must also have been unable to provide its usual in-person customer service from its premises. Owner managers can apply for the grant by visiting their local council’s website.
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In order to see the true picture of their business’ cashflow, it is vital that owner-managers have the key numbers at their fingertips. By having access to accurate profit and loss balance sheets and other core management data they will be in a better position to make important decisions about their business’ future. Owner-managers should also consider seeking the support of experienced insolvency practitioners, who can help owner managers in assessing the business’ viability and talk through its options for getting back on the road to recovery.
While the rollout of the COVID-19 vaccination programme is creating a light at the end of the tunnel for the UK business landscape, the pandemic is far from over and it’s crucial for owner managers to ensure they’re cash-ready for the end of Government support measures. By carefully assessing their financial position and viability, scenario planning and investigating their eligibility for the Restart Grant, owner managers can take back control and prepare for a successful restart.
Debt doesn't have to be a fact of life, although many people look at it that way. They assume that it's normal to owe money and may not even pay attention to how much they are paying in interest or how long the payments will take them at their present rate, which could be decades. Others might be struggling to keep up with their bills and wonder if they will ever be in a better financial situation. Wherever you are on this continuum, it is possible to pay off debt fast using the steps below.
Overhaul Your Finances
Your first step is to take a serious look at your finances and figure out how much is coming in, how much is going out, and how much you owe. For now, just make a list of your total debts, excluding your mortgage since it may be more beneficial to pay this one off over time. Now, review your spending and look for places where you could cut back. Dig deeper than simply cutting back on your entertainment budget or buying cheaper groceries.
For example, could you be paying less for car insurance? What about moving to a cheaper apartment or getting roommates? If you have looked at ways to cut back and not found many, you might need to consider taking on another part-time job or looking for a higher-paying one. Another option is gig work, which can mean anything from dog walking to computer programming and more and is easy to fit around your regular schedule.
Look at Your Debt
The next step is to look at ways to reduce your debt in addition to paying it off. For example, interest on your credit cards is probably very high. Rather than continuing to pay off a little each month, a better option might be to take out a personal loan from a private lender. You can check your estimated interest rate, and it is likely it will be lower than the credit card rate. You can then use the loan to pay off the credit card in full and then turn to paying off the loan at a lower rate.
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Have a Plan
Next, you should decide whether you would prefer to pay off your smallest debts first or those with the highest interest rates first. The latter is the more financially sound approach because you will end up paying less in the long run. However, some people find that the former method is more motivating. The main idea is for you to stick to your plan, so choose the one that is the most appealing to you.
Make a list of the debts in the order that you will focus on them. Whichever one you begin with, put the majority of your money set aside for these payments toward that. On everything else, simply make the minimum payment. When that first one is paid off, add what you were paying on it to the minimum payment on the second item on the list. As you proceed through the list, the payments you make on the main debt will grow larger.
Annie Button outlines the most common financial failures of SMEs and how they can be averted.
Running a business is tough, regardless of what sector you work in. But if you’re not careful where your finances are concerned, you could be making the situation harder than it needs to be. These are some of the common financial pitfalls that many businesses slip into and how to avoid them.
Failing to have a budget in place
A business budget is vital for managing future expenses and controlling your finances. But so many businesses operate month to month without any plan for the business’s earnings.
To ensure that you’re not spending where you can’t afford to, or paying too much in one category, you should have a budget in place that is conservative – in other words, keep your income estimates on the low end of the scale and your expenses on the higher side, so that you’re not caught out at the end of the month.
Too many people on the payroll
As a business, you want to grow and scale up – it’s a sign that you’re doing well and, for most businesses, it’s the ultimate goal. But having too many people on the payroll too soon could mean you’re overspending where you can’t afford it. Many entrepreneurs find themselves in need of help and they hire too many people too fast, which causes problems where the budget is concerned.
A compromise to ensure you’re not doing everything yourself is to look into hiring people on a part-time basis or contractors. Freelancers are also an alternative that can help you save money without compromising on your business, as you will only be paying for the work they carry out rather than a full-time salary.
A compromise to ensure you’re not doing everything yourself is to look into hiring people on a part-time basis or contractors.
Suffering from a cyber attack
A cyber attack can impact your business in multiple ways, from its finances and operations to the reputation of your brand. Cybercrime can be incredibly costly to resolve, not just because of the remediation work required to clean up the system but also because of the reputational damage it can cause.
There’s also the issue of compliance and adhering to GDPR regulations that could mean your company is fined for failing to protect customer information.
It’s vital that you secure your network and make sure that staff have cyber awareness training, and by investing in proactive rather than reactive cybersecurity technologies. You should also enforce secure password policies across the business and use firewalls to protect data. It’s also a wise decision to back up your data regularly and have protocols in place should an attack occur.
Failing to separate personal and private finances
A common mistake that can be detrimental to businesses is merging personal and private finances. It’s important to consider your business a completely separate entity from yourself from the start, as it can cause complications in the future if you don’t.
You should set up a separate bank account where all money earned from the business is paid into and any business expenses are paid out of. Likewise, if you require a credit card, ensure that your business has a separate one so that it’s easier to track payments.
Not saving for a rainy day
Issues with cash flow can be a real problem, even for successful businesses, if payments aren’t managed properly. And while it’s nice to believe that everything will run smoothly from day one, chances are there will be unexpected events or emergencies in the future that require funds to keep the business afloat. 2020 has possibly reinforced this point even more for so many businesses.
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To ensure you’re never in a difficult situation, it’s important to have money tucked away for such situations that you can lean on when times are tough, without having to resort to credit cards and loans. A good rule to follow is to assess what your basic responsibilities are and average out the cost, then put three months’ worth aside in a contingency fund.
Final thoughts
There are so many potential risks when running a business and it’s all too easy to assume that your business won’t suffer if you cut a few corners. But ultimately, in order for your business to thrive and stay in good financial shape, it’s critical that you consider all eventualities and prepare for them accordingly, whether that’s having savings in place, protecting data from threats or being savvy about how you hire staff.
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.
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.
However, directors should be aware of some important changes to the rules and those facing financial difficulties should waste no time in seeking expert support. Simon Underwood, insolvency partner at accountancy firm Menzies LLP, outlines what company heads should know about the Government's support going forwards.
The extension of the temporary insolvency measures put in place to protect businesses during the pandemic reflects the ongoing financial distress that many organisations are facing as the UK enters a second wave of coronavirus. Aligning with a general tightening of government rules, the step provides organisations with “extra time to weather the storm”, in the words of Business Secretary Alok Sharma.
Introduced in March, the original easements sent out a strong message to UK business managers, emphasising that the normal insolvency rules did not apply and that directors should focus simply on keeping their companies from going under. However, the Government’s decision not to extend its relaxation of the wrongful trading provisions indicates a significant change of stance. Directors who should have concluded that there was no reasonable prospect of avoiding insolvent liquidation but continue to trade could be liable for any losses incurred after 1 October, in the event that their business goes into liquidation. Directors in this position who are also applying for government financial support, for example, under the Coronavirus Jobs Retention Scheme, will also be more exposed to the risk of investigations from HMRC.
Businesses facing financial difficulties should also be aware that from December, HMRC will regain its status as a preferential creditor. This is particularly important for directors who have provided personal guarantees to banks or other financial institutions. This may result in the payment of higher sums under personal guarantees in the event of an insolvency, as financial institutions’ ability to recover their debts under floating charges is reduced. The fact that they will be able to recover lower amounts under their security is also likely to make them more risk-adverse when it comes to lending. This could make it more difficult for companies to secure this type of funding and cause banks to increase the cost of borrowing, both of which could have a negative impact on an organisation’s working capital.
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Announced on 16 September, the extension to Government’s commercial eviction ban will also help to provide many businesses with breathing space, protecting those that are struggling to pay their rent as a result of the pandemic from being evicted. However, it’s also vital to bear in mind the challenges this development poses for landlords, especially in the event that tenants have run up significant rental arrears. In the long term, closer collaboration between landlords and tenants and a fresh approach to rental agreements will be required to find solutions to tenants’ financial problems. For example, this could involve the ability for tenants to reduce the amount of space they’re paying for based on their changing commercial needs or switch to a turnover rent model, where rental payments are based on the turnover of individual business outlets.
For those experiencing pandemic-related financial distress, remembering that “cash is king” is key to avoiding insolvency. Three-way forecasting is an essential decision-making tool, enabling directors to calculate their organisation’s likely future financial position and take steps to address any cashflow gaps before it’s too late. This type of modelling involves combining data for the organisation’s profit and loss, cashflow and balance sheets, allowing ‘what if’ planning to be conducted for a number of possible business scenarios. As turnaround measures take time to implement, forecasts should be undertaken for at least the next two to three years. If cash projections indicate the lack of a viable financial future for the organisation, businesses should waste no time in seeking the support of an insolvency specialist, who will be able to suggest the steps needed to transform the company’s financial fortunes and continue trading.
The extension of Government’s temporary insolvency measures will certainly have bought more time for UK business owners and directors feeling the financial effects of the coronavirus pandemic. However, it’s important to note that these measures won’t be around forever and in order to future-proof their organisations, directors must take a proactive approach to strengthening their cash position. By using three-way forecasting effectively and getting expert advice now, businesses can improve their long-term performance and keep insolvency at bay.
Annie Button offers advice on how smaller companies can remain solvent during a uniquely tough period for business.
The COVID-19 pandemic has been a difficult time for businesses of all sizes - but it may well be the case that small companies have suffered the most. Of course, issues such as fewer people spending money and reduced footfall to physical premises have certainly hurt companies, but there are some financial challenges that have held SMEs back unnecessarily.
However, this doesn’t need to be the case. Small businesses can do many things to ensure that they are not holding themselves back. Here, we take a look at five financial challenges that have been a problem for SMEs through the COVID-19 pandemic.
1. Failing to move away from manual accounting
Through COVID-19, the rise in people working from home has been highly noticeable, and it looks like the trend will be here to stay even after the worst of the pandemic is over. But the need for remote working has created some issues for small businesses that were still reliant on manual accounting and physical documents.
“Business is moving onto the internet and has been doing so since its creation,” says Robin John of Wellden Turbnull. “Traditionally, computer-based accounting was the reserve of big business, and everyone else kept manual records in ledgers, but the advent of new technologies and software-as-a-service accounting platforms has made it possible for businesses of all sizes to operate online.”
If businesses were unable to work from their office through lockdown, it may have created a backlog in their accounts - many SMEs are still trying to recover from this. So, now really is the time to invest in a move away from manual accounting.
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2. Lack of cash flow
Certainly one major challenge for businesses over this period has been a lack of cash flow. But many businesses had their revenue dramatically reduced, while still having to pay out for all of their normal expenses.
The solution that some businesses have taken to stem the issue of lower cash flow has been to make staff redundant or make other cutbacks. But there are other alternatives. The government has made a number of schemes available, and many lenders are offering more flexible lines of credit to allow companies to continue to pay staff and suppliers while waiting for cash flow to return to normal.
3. Not spending on marketing
Now, it might seem that, given the point above regarding cash flow problems, expensive marketing could be one of the first things to cut. However, this is a mistake. At a time when companies need any business that they can get, this is not the time to be reducing marketing spend.
This is especially true if your competitors are reducing the marketing budgets - this will simply make your brand stand out even more than before.
4. Not having a solid business plan (or any at all)
Having a robust business plan with a lot of thought put into it has been an absolute essential for small businesses for a number of years. So, you might be surprised to learn that over 1.5 million SMEs across the UK have no business plan at all. This can cause serious problems.
COVID-19 has certainly caused havoc for companies - but without a business plan to assess and understand what the company needs to do to survive, many SMEs have floundered and struggled. If your small business has no business plan, now really is the time to invest in drawing one up.
Having a robust business plan with a lot of thought put into it has been an absolute essential for small businesses for a number of years.
5. Failing to anticipate expenses
It is important that companies do not live at the edge of their means. In the ideal scenario, your SME should actually keep some money back so that you can deal with those annoying expenses that come up every now and again. If SMEs fail to plan for unexpected expenses they can be left in a very tricky situation.
Final thoughts
There is no doubt that 2020 has been a tough time for SMEs, especially from a financial perspective. But if you can anticipate some of those challenges that your small company will face, it can give you the opportunity to come up with useful solutions. Ultimately, understanding where these challenges can come from gives you the chance to plan for ways to avoid them.
Yaela Shamberg, Co-Founder and Chief Product Officer at InvestCloud, offers Finance Monthly her insight on how wealth managers can engage investors with digital solutions.
The Desire for Digital
As wealth managers face the pressure of the race to zero fees in an increasingly competitive marketplace, they are looking for ways to mitigate these threats while simultaneously preparing for the oncoming wealth transfer. Recent research from IQ-EQ has revealed that $15 trillion USD is to be passed to Millennials, Gen X and Y in the next decade – triggering a new era of high net worth individuals (HNWIs) who are digital natives that expect online wealth management portals with cutting edge tools.
Digital advice tools for HNWIs have been available for some time, but few have proved ideal for this client base. This is because wealth managers are asking the wrong questions. When it comes to finding suitable digital tools, they are looking for a one-size-fits-all digital solution, when in truth, they would never think to offer an impersonalised service to clients offline. What they need are solutions that enable the same level of personalisation and understanding to the individual that they would provide face-to-face – creating true digital empathy.
Introducing Personas
Those who have been successful in their digital transformation are achieving this by developing multiple ‘digital personas’ that provide their clients with individual experiences and functionalities which speak to their characteristics and goals. This improves the client-manager relationship, as the client feels they are receiving a more tailored service that allows them to interact with their wealth in the ways that they want to. The number of personas one offers may differ depending on how much a firm wants to invest in developing digital experiences, and the diversity of its clients. Nevertheless, the requirements of HNWIs can be roughly split into three personas, which must be catered to at a basic level.
Those who have been successful in their digital transformation are achieving this by developing multiple ‘digital personas’ that provide their clients with individual experiences and functionalities which speak to their characteristics and goals.
The Hands-On Investor
The hands-on investor requires a self-select persona. They know about the financial markets and want to be involved in the investing process. Some may even want to make all of their financial decisions independently. For this demographic, tools to browse, research and self-select their chosen investments are crucial – enabling them to build their own models and feel involved in their investment process.
But this does not rule out the wealth manager. They must curate investment options, enabling the investor to filter through them by topic, trend or through insight into what their communities are selecting. Communicating with this type of persona must respect their mindset and preferences, by being on their terms. Having a variety of channels available such as chat, video calling and voice memos, enables the investor to choose how and when to interact with their wealth manager.
The Life Planner
The life planner needs to be catered to with a goals-based planning persona. To them, investments are a means to a very specific end – and they need a holistic service that takes into account their entire financial wellbeing. This means managers must pay close attention to their clients’ investment goals and understand exactly what they want to achieve and why. This breaks down to understanding their goal funding, their risk tolerance and a number of other factors.
This begins with empathetic discovery – meaning digital workflows that clarify investment goals including questionnaires and capturing total assets and liabilities, income and expenses, projecting cashflows and applying stochastic models. Once onboarded, the wealth manager needs to be constantly communicating with the client so that they can keep track of their progress as they approach life goals. They also need digital tools that help them visualise their progress such as charts and trackers.
Once onboarded, the wealth manager needs to be constantly communicating with the client so that they can keep track of their progress as they approach life goals.
The Traditionalist
There are absolutely still those who fall into the client segment that tend to prefer a “white glove” service from prestigious wealth managers and therefore require a traditional persona. These clients are typically ultra-high-net-worth individuals (UHNWIs) who require greater assistance from their wealth manager when choosing investments, and like these to be laid out in formal proposals.
These clients need a high level of customisation, which can be time-consuming. Digital advice builder tools come into play here as they enable automation, giving the wealth manager the ability to tailor portfolios to the client’s short and long-term goals and thematic interests quickly and efficiently. This frees up time that the wealth manager can now spend focusing on maximising profitability and tasks that add value. Then, these portfolios can be presented in the form of beautifully designed proposals which demonstrate greater empathy for the client’s preferences.
Making Digital Advice 'Stick'
Providing a wealth management service through the medium of tailored personas is a digital engagement strategy that enables greater digital empathy. But once the wealth manager has made this personalised service available, how can they make it ‘stick’ and keep clients coming back to their digital portals?
One way managers can keep clients coming back is by deploying gamification principles throughout the client experience – through which we can encourage greater and more active participation by implementing progression dynamics and establishing communities to help investors progress and learn. This is particularly useful for the self-selecting investor as it keeps the wealth management firm front and centre without being unnecessarily high-touch.
It can also be used to encourage positive behaviour from life planners, who can track their progress and be ‘rewarded’ when they enter useful information or complete certain actions within a desired timeframe. Establishing a community also enables them to gain insights into how their peers are progressing with their own investing goals. Keeping clients engaged in this way translates to longer-term loyalty, which in turn means greater profitability for the wealth management firm.
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For wealth management firms already using digital advice tools for other client segments, these can easily be expanded upon for HNWI demographics. Through a combination of personalised personas and behavioural science techniques to encourage loyalty and build trust, managers can service clients more effectively whilst taking advantage of automation that frees up time to take on new clients.
Digital Is Here
Regardless of investor types and personas, the future of digital offerings – for all – is here and with that comes a need to deploy digital empathy, tools and advice which enrich client lives. The use of thoughtful digital advice, seamlessly integrated into client portals and intuitive mobile apps, brings opportunities to uplevel client offerings, and match the premier services and tools they've come to expect from their wealth managers.
A recent American Express’s CFO survey found that 89% of UK CFOs believe that the prospect of unanticipated surprise events is a rapidly growing concern for their company[1].
In light of this, it’s no surprise that the research also revealed that 96% of CFOs think that improving cash and working capital management is more important this year than last year.
It’s not only the big players for whom access to cashflow is vital. For SMEs, it’s arguably even more significant. Having working capital to hand allows SMEs to take advantage of their size and be nimble in responding to growth opportunities.
It also creates a safety net that could make the difference between staying afloat and going under. This is particularly the case for young SMEs starting out, with recent research suggesting just 41.5% of SMEs survive the five-year mark[2].
Of course, despite the best intentions, there will always be hiccups along the way, and occasions when a business must crack down on late payments.
American Express’s SME research with Oxford Economics shows that many SMEs find it challenging to stay on top of cashflow, with 30% of UK SME leaders reporting that getting the funds to drive growth is difficult.
Taking back control of cashflow
So how can businesses keep on top of their cashflow and thrive in the face of political and economic uncertainty?
For any business, the first rule in taking control of cashflow is to keep an accurate record of all payments and outgoings. Without an up-to-date cashflow forecast for the months ahead, it’s impossible to identify vulnerabilities or determine how much can safely be invested in growth opportunities.
The next step is establishing strong relationships with suppliers and customers. For many finance departments, it can be tempting to artificially improve cashflow figures by insisting on longer payment terms with suppliers and shorter payment terms with buyers. But doing so is likely to breed ill-will and resentment in the long term.
Instead, make sure background checks are carried out to ensure you’re working with a trusted and sustainable partner, including credit checks. And then clearly communicate expectations from the outset, to establish a good working relationship based on transparency. It also helps to send invoices out immediately to facilitate prompt payment.
Of course, despite the best intentions, there will always be hiccups along the way, and occasions when a business must crack down on late payments. The most effective way of managing this is to incentivise the other party to pay on time, such as offering a small discount or favourable repeat terms. It’s also important to have an agreed and consistent escalation process in place, in cases where late payments need to be followed up.
Supply chain financing
Once these measures have been taken, there are also products and services available to businesses to help improve their cashflow. One example is supply chain financing, which enables customers to pay suppliers via a third party. Once an agreement has been reached between the two parties and an invoice approved, the third party pays the supplier their money and the customer holds onto their capital until it receives a single consolidated invoice at the end of its billing cycle.
This process allows suppliers to receive their payment immediately and affords customers more time before the money leaves their account – improving cashflow for both parties. At American Express we offer this service to thousands of our business customers, providing them with critical support to optimise their cashflow.
Companies exercising good cashflow management are better equipped to mitigate against external uncertainty and unlock opportunities for innovation and growth – benefiting the business, its customers and its suppliers in the short, medium and long term.
[1] American Express collaborated with Institutional Investor’s Custom Research Lab on its Global and Spending Outlook, a survey of 870 senior finance executives at large enterprises, 100 of whom are based in the UK. Survey responses were gathered in November and December 2018.
[2] https://survivalcalculator.biz
These intermediates a source of funding that consents to pay the business of the value of an invoice after a deduction for commission and fees. The agent pays most of the invoiced value to the company directly and the surplus upon receipt of the balance of the invoiced company. There are three individuals directly included in a transaction: the Factor, who buys the invoice, the seller of said receivable, and the debtor, the company, or individual who must clear the debt attached to the invoice.
How these intermediaries or agents works
A factor enables a business to obtain direct capital based on the expected income attached to a particular sum due on a business invoice or an account receivable. Accounts receivable (AR) are a history of money clients owe for sales performed on credit. This permits other interested individuals to buy the funds payable at a reduced price in exchange for granting cash upfront. This whole process is referred to as factoring. An important thing to note is that it is not considered a loan, as the individuals neither issue, nor obtain debt as part of the action. The money provided to the firm in exchange for the accounts receivable is likewise not subjected to any limitations regarding their use. The requirements set by individual agencies may differ depending on their internal policies. Most of these transactions are done through a third-party financial institution, known as a factor. These brokers often free funds connected with newly acquired accounts receivable inside 24 hours. Repayment terms can differ depending on the cost involved. Besides, the portion of funds given for the particular invoice, this is referred to as the advance rate.
While there are numerous reasons why companies choose to use to sell their invoices as a business instrument. Here are some of the key advantages that most of these agencies firms provide:
Provide quick access to cash
When you render a product on credit, it is reasonable to wait more than 30 to 90 days on client payments. That process can lead to cash flow difficulties. Agents will offer an advance on any invoice, and this is often provided within a day. This immediately raises cash flow, enabling you to add workers, buy supplies, and meet other expenses that accommodate companies to meet demand.
Accelerated growth
Using the option of gaining finance by using your account should offer a firm the versatility and ability to grow at a more accelerated pace that is self-financed or dependant on loans. Additionally, using a factor is also a straightforward process to set up. But, instead of shopping for a conventional bank loan, you can start an account in days. Unlike standard banking terms, there is little limit to the amount of finance from one of these companies that has a robust capital structure.
Free up valuable time
Collecting cash from clients can be demanding on your company’s time and expenses. These businesses take over that position providing collections professionals who will attend to your clients until they pay the full amount owed. Many of these factors also offer online services that enable you to follow real-time customer repayments. Freeing up valuable time for you to continue to serve customers, seek out new business opportunities, and not have to worry about chasing money owed to you.
Fees and Terms
Before you enter into any agreement, you should pay close attention to all the terms and conditions of the contract. Unfortunately, these fees can vary considerably depending on the firm and the industry you are in. Some of these businesses only charge a straight fee, usually a percentage of the full value of the customer invoices. Other firms charge extra fees that cover capital transfers, transportation, insurance, and other expenses attached to doing business.
Experience in critical
It is essential that you find a business that has expertise in your industry and the capital necessary to continue to fund your company as it expands. Building a relationship with a factor could prove to be vital to the success of your company in the long term. Be careful not to choose a small firm, as they might not have the capital you need down the line to service your needs. Do your research before deciding.
Fund expansion
Most companies need to obtain finance to expand. But with a limited financial history, sometimes it is difficult to get the required financing. Unless you possess a reliable cash flow statement, most standard financial institutions will not even consider you for cash flow or asset-based finance. Most of these firms do not operate on the same terms; they will finance you primarily based on your company's credit history.
Find better customers
Over time, if you build a strong relationship with a factor, they have access to information on companies who may become your customers. They can tell you who to approach and, more importantly, who to avoid. This can save invaluable time and money.
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No debt incurred
Any agreement made with a factor is not a loan, you are merely financing your business through already accumulated invoices, any obligations are settled once your customers pay their debt in full. This is a huge advantage for smaller businesses who might already be overburdened with debt.
There are many more benefits to choosing to factor than just the ability to increase your company’s cash flow. The vast majority of factors will handle collections on your behalf, pursuing customers for their overdue invoices. Not only saving you both time and money as mentioned earlier, but it also gives you peace of mind.
One potential stumbling block will be the creditworthiness of your clients. A factor is more concerned with the ability of the invoiced parties to repay their debt than your company's finances. We understand that using a factor is not the most affordable form of financing, but it has proven an invaluable resource for many companies. Especially those who have chosen to operate in a field where clients are notoriously slow at concerting their receivables. Instead of waiting they focus on rapid expansion and using the increased profits to offset any expenses incurred.
The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, almost two-fifths (39%) of invoices issued in 2019 (worth over £34b) were paid late, an improvement on 2018 when 43% of invoices were paid late. However, the number of days an invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018. Invoices paid late were typically larger in value (£34,286) than those paid on time (£24,624).
Long payment vs Late payment
There is a distinct difference between these terms. Long payment terms refer to the time contractually agreed between parties when invoices will be settled for goods and services provided. Whilst sometimes lengthy, they are a reality of doing business. Businesses can plan to cover these cash flow gaps and manage their working capital using either cash reserves or finance tools like invoice finance. Late payment refers to the additional time taken to settle invoices, outside of those contractually agreed at the point of purchase. This is an unknown and unexpected element which can significantly impact cash flow, business plans and even in some cases paying staff or creditors.
Bilal Mahmood, External Relations Director at MarketFinance, commented: “It’s great to see that fewer invoices were paid late in 2019 but worryingly, those that were paid late took twice as long as in 2018, up from 12 days to 23 days. Late payment practices harm business cash flow, hampers investment and, in extreme cases, can risk business solvency. Separate research we’ve conducted highlighted that 87% of businesses are prevented from taking on more orders because of the cashflow constraint owing to late payments. Overall it seems who you are doing business with and where they are based is important to know for a small business if they need to forecast cashflow”.
“Government measures such as the Prompt Payment Code and Duty To Report have helped create awareness but need more bite. Until this happens, there are ways for SMEs to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”
Sectors
Professional and legal services businesses suffered the most with late payment in 2019. Seven in ten (70%) of invoices were paid late, up from 30% in 2018. Manufacturers (57%), retailers (49%) and creative industries businesses were also heavily impacted by late payment of invoices. Interestingly, late payment practices improved for companies working in the utilities and energy sector with only a third (34% of invoices being paid late in 2019 compared to two-thirds (66%) in 2018.
Regions
The number of invoices paid late to companies by region was fairly evenly split. Notably, businesses based in the South East (56%) and Northern Ireland (55%) had the highest number of invoices paid late in 2019 and late payment practices worsened from the previous year.
The biggest improvements 2018 vs 2019 in late payment practices were in North West (63% vs 37%), North East (60% vs 40%), Scotland (62% vs 38%) and the South West (61% vs 39%). Additionally, businesses in the North East (25 days vs 11 days) and South West (33 days vs 10 days) had more than halved the number of days an invoice was paid late.
Countries
The analysis looked at invoices sent to 47 countries by UK businesses. US companies were the worst late payers, taking an extra 51 days to settle invoices from agreed terms in 2019. German firms took a further 32 days and businesses in China took an additional 10 days. Interestingly, French, Spanish and Italian businesses halved the number of days they paid late from 24 days late in 2018 to 12 days in 2019.
Bilal Mahmood added: “SMEs owners have come to expect long payment terms but late payments are inexcusable. For every day an invoice is late, it’s more time spent chasing payment. This means less time for business owners to focus on growing their business, coming up with innovative ideas and hiring more people, or just paying their staff and bills. Things need to change quickly.”
“We want the UK to be the best place in the world to start and grow a business, but the UK’s small-to-medium-sized businesses are hampered by overdue payments. Such unfair payment practices impact a business’ ability to invest in growth and have no place in an economy that works for everyone.”
According to Mark Judd, VP, HCM Product Strategy, EMEA at Workday, embracing technologies such as automation and artificial intelligence, payroll professionals can ditch processes, create more enhanced payroll services, and get closer to their employees.
Up to 97% of employers believe that employee expectations of their workplace experiences are changing, according to Aon’s 2019 Benefits and Trends Survey. Workers increasingly expect their employers to deliver seamless, personalised and human services, which mirror those they receive in their personal lives. This has prompted businesses to re-examine all the ways they interact with employees, with arguably the most important interaction being payroll.
Personalised pay
For years, companies took a one-size-fits-all approach to the services they delivered to employees. However, staff now expect smarter and more contextual interactions with their employers. Personalised payroll, adapted to the wants and needs of different employees, is a prime example.
An increasingly popular form of personalisation in payroll is on-demand pay. Through on-demand pay schemes, employers can offer staff greater flexibility over when they’re paid and offer the chance to access a percentage of their pay at the end of each day or week, for example. This increases employees’ ability to handle unexpected payments and can help them to better manage their finances. This could be highly valuable to employees, given that over 50 percent of young Britons currently live “hand to mouth”, according to research from Perkbox.
By personalising pay, businesses can recognise each employee’s situation and needs, enhance their experience and improve loyalty across the workforce.
Feedback loop
Feedback is key to successfully personalising pay arrangements and wider payroll functions. Not only does it help businesses to improve their services, but it also boosts employee engagement. After all, employees have come to expect their feedback to be heard and incorporated into process updates, in the same way, it would be in their personal lives as consumers.
Regular focus groups and routine employee surveys are great ways to gather feedback, and particularly effective if workers can contribute on their mobile devices. By connecting this feedback with the payroll team and wider HR function, organisations can make sure the voice of the employee is present when operational decisions are made.
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Providing education
Employees often request assistance in understanding their payslips and pay structure. In fact, over a quarter of respondents to the CIPP’s 2019 Future of Payroll survey reported an increase in the volume of payroll enquiries they received. A part of payroll’s function should be to educate the workforce on how payroll works. From promoting the payroll calendar to an understanding of payslips and the inner workings of pay, this will help employees across the workforce to get the most out of this function.
However, to meet staff expectations, for both education and seamless services, there needs to be a shift to digital payroll platforms. For instance, modern payroll technology can allow employees to access information about how they are paid and find answers to commonly asked questions. This, alongside process automation, helps free up payroll professionals so that they can spend time working with people to resolve more complex queries.
Embracing technology
Technology has a big role to play in the consumerisation of payroll. Complex, legacy systems that currently take several days to process payments and keep the employee at a distance will be consigned to the past. They will be replaced with simpler, less labour-intensive systems that take a more holistic view of the employee and their needs.
Solutions, such as machine learning, robotic process automation (RPA), blockchain and digital credentialing, will also create new opportunities for employers to increase process efficiencies and improve compliance management, so they can focus more on employee experiences.
Feedback is key to successfully personalising pay arrangements and wider payroll functions. Not only does it help businesses to improve their services, but it also boosts employee engagement.
The consumerisation of payroll
In a competitive job market where it’s difficult to retain talent, businesses should understand how each employee interaction impacts the overall experience and what can be done to improve it. No interaction is more important than the way a company pays its employees. Understanding the needs of each individual and giving them greater flexibility and control over how they’re paid can turn something that was once transactional, into something that feels a bit more personal.
