In June, the Coronavirus Job Retention Scheme (aka the “furlough scheme”) enters its penultimate month as we have come to know it. Described as a lifeline by many, it has kept a number of businesses afloat during this difficult time, by allowing them to recover 80% of employees’ wages from the government, up to a maximum of £2,500 per month for each employee.
Whilst the furlough scheme has often grabbed the headlines, it is not the only means by which business owners can preserve their business. Here, we take a look at a few examples:
SMEs have experienced reduced revenue streams, a lack of cash and disruption within their supply chins as a result of Covid-19. In response, the government has made available a variety of business loans available, which have proved extremely popular. For example, the Bounce Back Loan, which went live at the start of May, received around 100,000 applications on its first day, with Barclays seeing 200 applications in the first minute alone.
These loans are intended to provide sums to businesses which have been negatively impacted by Covid-19 but which were not experiencing financial difficulties prior to the pandemic.
The criteria businesses must satisfy, the amount of capital available and the terms of the loan itself vary between the different schemes on offer. This has left some businesses in some difficulty in deciding which loans they are eligible for and which, from a commercial perspective is the best to apply for.
For example, whilst the Bounce Back Loan is 100% guaranteed by the government and no repayments needs to be made for the first 12 months, businesses can only borrow up to £50,000. Alternatively, the Coronavirus Business Interruption Loan Scheme (CBILS) allows businesses to borrow up to £5million, although the government will only provide a guarantee on 80% of whatever loan is agreed.
Our Banking & Finance team is in regular contact with lenders and has advised a number of national and regional businesses on their eligibility for CBILS and what other financial support is out there for them.
The old mantra that “cash is king” holds particular weight in times of crisis. All businesses have regular outgoings (such as salaries, rent and utilities) which, without cash, can be difficult to pay. A failure to keep up with such outgoings can put a business into a downward spiral of debt from which it can be difficult to escape.
Maintaining cashflow as much as possible is therefore an important way in which businesses can protect themselves during Covid-19. Wherever possible, businesses should seek to recover debts promptly from customers and be wary of agreeing overly onerous payment terms with their suppliers.
Having an effective cash collection strategy is vital to maintaining cashflow in these difficult times. Businesses may wish to consider how and when they invoice for the goods or services they provide. Whilst this may be determined by the contractual terms they have agreed with their customers, businesses could seek to adopt a more proactive approach to raising invoices where possible, for example by:
- asking for money on account;
- invoicing on a regular interim basis;
- keeping in regular contact with clients and debtors;
- having a system in pace that tracks unpaid invoices and aged debt.
Of course, debt collection can be a time consuming and costly exercise in itself. As such, it may be preferable to outsource your debt collection activities to a debt collection provider, such as our Debt Recovery team, who provide a full service, from pre-legal through litigation to enforcement.
Map your Supply Chain
Mapping your supply chain is important in understanding where Covid-19 poses the greatest risks to your business over the coming weeks and months.
Whilst supermarket shelves are in a much healthier-looking position than they were a couple of months ago, the shortages in certain products which we all experienced at the start of the lockdown show just how increased demand over a short period of time can put intense pressure on supply chains.
Businesses will need to consider what contracts could be affected by delays or disruption caused by Covid-19 and whether it has contingency plans in place to mitigate the effects of such delays and disruption. This could involve:
- ensuring that goods or service can be sourced from alternative sources, if required;
- whether any costs can be passed down to customers or back onto suppliers;
- drafting a business continuity and disaster recovery plan; and
- using new technologies to find other ways of delivering goods or services.
To understand the risks to their supply chain, businesses will need to maintain an open dialogue with their suppliers in order to identify any risks as early as possible. Business should work with their suppliers to come up with solutions to mitigate the impact of any delays and record these as variations to their existing agreements.
Our Commercial team can assist businesses in identifying where the risks are in their supply chains by reviewing commercial contracts, advising on whether it is possible to invoke force majeure (more on that below) and assisting with finding ways in which Covid-19 risks can be mitigated.
Whilst it is perhaps a touch trite to view Covid-19 as an opportunity, given the hardship and loss it has caused to so many, the unique challenges posed by Covid-19 will lead many businesses to think of new ways to deliver their goods and services, as well as diversifying their offerings to meet the changing demands of a population still in the thralls of a general lockdown.
Many of us many never have used Microsoft Teams, Zoom or House Party before March 2020, but we have all certainly become well versed in the benefits of video conferencing, both in our professional and private lives.
On a wider level, a variety of technologies are out there which have the potential to enable organisations to stay open for business where otherwise they may have been forced to close. As for those businesses in the innovation industry, the current climate creates the perfect environment for the development of new solutions to new problems which can create new revenue streams for such businesses.
Similarly, it has been well publicised that a number of businesses in the manufacturing sector have begun to produce PPE, ventilators and other equipment used to combat the effects of Covid-19. Whilst such products may be a departure from the goods such businesses might normally provide, by diversifying their product offering these businesses are helping the national effort in the fight against Covid-19, generating revenue into the business and maintaining jobs at the same time.
Covid-19 will inevitably cause some businesses to fail or be delayed in performing their contractual obligations. This can lead to those businesses incurring significant liabilities to their contractual parties for the costs arising out of such failure or delay.
The principle of force majeure allows a party to be excused from any failure or delay in the performance of its contractual obligations where this is caused by an event beyond its reasonable control.
If businesses are able to rely on the principle of force majeure then this could enable them to avoid significant liabilities and could mean the difference between continuing to operate and going bust. Contrastingly, if a business informs you that it is no longer able to perform the contract it has with you but is not liable for the costs you incur due to force majeure, then this can leave you out of pocket, having to procure alternative goods or services at the last minute and potentially liable to your client.
As such, the question of whether or not force majeure applies in any contractual situation affected by Covid-19 is an important one. Businesses should ensure they are familiar with the principles of force majeure, when it applies, what effect it has and what obligations both parties have when a force majeure scenario is invoked.
Our Commercial team can provide extensive advice on the application of force majeure as well as assistance with drafting force majeure clauses in commercial contracts.
Furloughing and Redundancy
Finally, we return to the issue referred to at the beginning of this article: furloughing and redundancy.
At the end of May, the Coronavirus Job Retention Scheme had been used to furlough approximately 8 million jobs in the UK. It has clearly been an incredibly useful tool in helping businesses to continue to pay and retain their workforce despite substantial drops in revenue.
However, the harsh truth is that the Coronavirus Job Retention Scheme has not avoided the need for redundancies. Indeed, as we come to realise the true damage to the UK’s economy over the coming weeks and months, it is likely that more redundancies will follow as the government fades out the scheme.
Furloughing and redundancy must be approached with caution, as carrying out either incorrectly could result in a significant number of wrongful/unfair dismissal claims, which could quickly wipe out any savings a business might have hoped to realise in the first place.
These are unprecedented times and each business will need to approach Covid-19 in its own way in order to address the unique challenges the virus poses to its operations. Whilst the above may assist in providing you with a place from which to begin planning on how to protect your business over the next few months, we are here to support you during this difficult time.
If you do have any questions, please feel free to get in touch.