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January 27, 2021

Cash is still king when it comes to SME cashflow in 2021

By Jonathan Andrew

As we enter the new year, the impact of Covid-19 remains, which is why cashflow management will be high on many SME leaders’ agenda, says Jonathan Andrew, Bibby Financial Services’ global chief executive.

SMEs have felt the pinch more than most, facing several alien challenges. Disruption to supply chains, adapting to changing consumer habits, and cash flow hurdles, all of which threatened their very existence, largely left 2020 growth plans in the mud. And that’s before we get on to Brexit. 

Last year, the UK Government was quick to recognise and respond to the perilous environment facing SMEs, and the (continued) raft of support packages have helped the majority navigate the crisis in the short term. Private lenders also responded, with banks lending twice as much to small and medium-sized businesses in the first three quarters of 2020 as in the whole of 2019 – totalling £54bn. 

Additionally, the lenders that took the time to understand their clients’ long-term needs, and aligned their funding with long-term opportunities, undoubtedly helped SMEs who wanted to plan despite the challenges. 

This fuelled optimism and a recent study from Yell found that over 7 in 10 SMEs were optimistic about the next 12 months, and with good reason. 

With the vaccine now being rolled out around the world and the end of the pandemic in sight, businesses can surely afford to feel hopeful for the year ahead? 

Unfortunately, this isn’t necessarily the case. The International Monetary Fund forecast the global economy may have shrunk 4.4% for 2020, before bouncing back to 5.2% later this year. 

Additionally, Fitch Ratings has warned that globally, small businesses failures have been cushioned by government support, but with many schemes ending, there have been calls for further measures, including revenue loss cover, extra cash grants and delays to repaying bounceback loans to prevent a surge in bankruptcies. 

Overcoming the remaining barriers

The road to recovery is certainly not a straightforward one. In its Global Economic Prospects report, The World Bank warned that the global economy could see a ‘lost decade’ of growth if governments and business fail to tackle the new challenges that they face. 

Covid-19 aside, the next few months will also reveal the true cost of Brexit to SME supply chains and markets. Despite the worst-case scenario of no deal being avoided, the process of understanding the fine print in the “tariff-free” deal is only just beginning. There are already growing concerns that the “rules of origin” provisions are seeing tariffs levelled on British exports to the rest of Europe. 

It would also be naïve to think that the latest wave of lockdowns across Europe will not have any implications for SMEs and the broader lending outlook for 2021. 

In the UK the latest package of Government support, providing emergency grants to help businesses in retail, leisure and hospitality to stave off collapse, has been warmly received but is clearly based on the assumption that this lockdown will be short and, due to the vaccine, final. 

In truth, more drastic action may well be necessary based on the current trajectory of the virus. 

Globally, even for those who are in a position to begin repaying government support, there will need to be a recognition that it will still be some time before a complete return to growth. 

Repayment plans, therefore, need to be structured accordingly. Clearly, economies around the world are still in survival mode and government intervention will continue to distort a market that is ready to lend.

The private sector is ready, willing and able

Beyond Government support measures, SMEs need to look to the private sector to support their growth ambitions. The invoice finance sector is well placed to help fund the economic recovery; it has an abundance of liquidity, as well as the experience, willingness and suitability to support SMEs.

Receivables finance helps businesses maintain a steady level of cashflow and can also reduce the adverse impact of late payments, which unfortunately many SMEs are still having to contend with. The problem is perhaps most apparent in the UK where there is a culture of late payments, across the nation it is estimated that SMEs are chasing £50bn in late payments. 

But the issue is not limited to the UK and with revenue under pressure, SMEs the world over have experienced either an increase in late payments or had payments frozen completely. The number of SMEs who will require funding to bridge the gap between raising invoices and getting paid is only going to grow. Bespoke, flexible finance will help them weather this continued period of uncertainty and allow them to quickly pivot towards growth when the time is right. 

SMEs need to recognise that planning for growth needs to start now. This includes planning for stock and inventory, staffing levels, supply chains, cashflow and, importantly, how they repay finance taken on during this period. SMEs need to tackle the year with a positive mindset and consider how they can prosper and evolve in changing markets. 

In the last 12 months, small businesses have shown admirable ambition and resilience in the face of unfathomable challenges. It is now of case of redirecting this energy toward a return to growth. They should be thinking about how they are future-proofing their businesses and how they can thrive in what will be a transformed economic landscape. 

What they must know, is that there is financial support available to them in the private sector, it is just a case of knowing where to look. 

The original version of this edited blog first appeared on 25 January on Bibby‘s website


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