Managing cash flow as government support ends

The unprecedented level of government financial support provided during the pandemic is winding down. The furlough scheme is ending, business rates holidays are being scaled back, and repayments on Bounce Back Loans and CBILS facilities have begun.

For many SMEs, this combination of reduced support and increased outgoings creates a 'cash flow cliff edge'. Proactive financial management is essential to navigate this transition successfully.

Forecasting is your best defence

The most important tool for managing this transition is a robust, rolling cash flow forecast. You need visibility over your expected income and outgoings for the next 13 weeks minimum. This forecast must factor in the resumption of full payroll costs, upcoming tax liabilities (including deferred VAT from 2020), and loan repayments. By identifying potential cash shortfalls in advance, you have time to take corrective action before a crisis hits.

Tightening credit control

As the wider economy faces these same pressures, the risk of late payment or customer insolvency increases. Now is the time to review your credit control procedures. Ensure invoices are issued promptly, follow up on late payments immediately, and consider reducing credit limits for customers with a poor payment history. Prompt collection of cash tied up in your debtor ledger is the cheapest form of finance available to your business.

Communicating with stakeholders

If your cash flow forecast indicates a problem, do not bury your head in the sand. Communicate early with your bank, your suppliers, and HMRC. HMRC’s 'Time to Pay' arrangements can be used to spread tax liabilities over a longer period, provided you contact them before the tax becomes overdue. Similarly, lenders may be willing to offer capital repayment holidays or restructure debt if approached proactively with a clear business plan.