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Covid- 19: Cash is King

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The importance of cash flow control has never been more prominent for a lot of businesses than it is in the current climate with Covid-19 disruption.

IT & Contracts Director Andrew Kirke from our partner Tughans Solicitors has summarised some key support measures and strategies available to help NI business maintain tight control over their cash flow over the coming months.

“Cash is King” in every business and cash flow is your company’s life blood.

In this article, we summarise some key support measures and strategies available to help NI businesses manage your cash flow during the challenging next few months.

This article is currently up to date as of 17 April 2020 but will be kept under review.

1. Government Backed Lending and Support Facilities

The Government has created two loan schemes to support businesses during the current Covid-19 crisis with the government providing lenders with a guarantee of 80% on each loan to give lenders further confidence in continuing to provide finance.

The Coronavirus Business Interruption Loan Scheme (CBILS) supports small and medium-sized businesses, with an annual turnover of up to £45 million, to access loans, overdrafts, invoice finance and asset finance of up to £5 million for up to 6 years.  The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees. This means smaller businesses will benefit from no upfront costs and lower initial repayments.

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) will support large businesses, with an annual turnover of over £45 million.  All viable businesses with turnover of more than £45 million per year will be able to apply for up to £25 million of finance. Firms with a turnover of more than £250 million will be able to apply for up to £50 million of finance.

Both schemes will be available through a series of accredited lenders, which will be listed on the British Business Bank website.  Eligibility criteria for both loan schemes can also be found on the British Business Bank website.

2. Tax Measures

Whilst Tughans do not provide tax advice, the Executive has announced several measures to support bricks-and-mortar businesses in NI, including a rates holiday over the next 3 months (with bills being issued in June 2020 rather than April 2020) to reduce financial pressure on businesses. VAT payments have also been deferred until 30 June 2020.

The Executive has also released details on NI Business Support Grant Schemes, which includes grant funding of £10K for businesses in receipt of Small Business Rate Relief. Payments will be made directly into the bank accounts of eligible businesses. Bank details are already held for just over 9,000 small businesses who qualify, with payments to be expedited to those companies. An online web portal has been set up for the remaining eligible businesses to register their details. The portal and more details are available here.

For rental properties, the scheme is designed to benefit the small businesses and not the landlord who is responsible for paying the rates, so there is an argument that landlords should be passing any savings through to companies (particularly if they are continuing to charge rent at the same levels).

Additional processes are underway on implementing a £25K grant scheme for businesses in the hospitality, tourism and retail sectors who pay rates on rateable properties valued between £15K and £51K.

3. Support for Employees

Salaries are a key cost, and there are measures in place to support your business:

Furlough for Employees: For your employees, the Coronavirus Job Retention Scheme, available to all employers in the UK, creates a new concept of “furlough”. This allows you to designate employees who may otherwise have been laid off, made redundant or otherwise affected by the circumstances of the outbreak, as “furloughed” and place them on paid leave. Furloughed employees must receive 80% of their usual pay or £2.5K a month (whichever is lower), subject to the usual deductions. These costs, including employer auto-enrolment pension costs and employer NICs, will in due course be reimbursed as a grant by the Government via HMRC, and claims can be backdated to 1 March 2020. The Scheme is designed to allow employers to retain employees who would otherwise have been laid off, made redundant or otherwise affected by the circumstances resulting from the outbreak and protect most of their income. It will run for an initial period ending on 31 May 2020, which may be extended. Full details of the scheme are available here.

SSP for Employees: The Government will also meet the cost of statutory sick pay (SSP) incurred by employers with fewer than 250 employees, to qualifying persons who are absent due to COVID-19, for up to 14 days. SSP will be payable from the first day of COVID-19 related absence. “Absence” for this purpose will include self-isolation due to COVID-19 symptoms or recovery.

Support for the Self-Employed: Whilst your business is under no obligation to financially support anyone it engages on a self-employed basis, it may be helpful to signpost them to the Government’s support scheme for self-employed people, which will pay the self-employed (earning trading profits up to £50K) a taxable grant worth 80% of their average monthly profits over the last three years, up to £2500 per month, running on a similar timeframe to the furlough scheme. More details on this scheme are available here.

More information on general options for employers can be found in our article here.

4. Employee Options

If for whatever reason your employees fall outside the available schemes, before you think about your options in terms of redundancy or temporary lay-off, you may want to consider conversations with employees around alternative remuneration. In a start-up context in particular, employees are often remunerated through a combination of cash and equity.

Some of your employees or co-founders may be willing to share some of the pain if cash flow is restricted over the next few months in return for a greater slice of equity, and this can be achieved in a variety of different ways, including employee options.

5. Leveraging Payment in Customer Contracts

With the Northern Irish courts announcing that they would be closing to all but the most urgent civil cases last Wednesday, it is important to have conversations with any key customers to ensure that your business continues to be paid over the following months.

If your customers are being unreasonable around payment terms, charging (or threatening to charge) interest may incentivise a customer to settle any outstanding bills more quickly, especially where the interest rate is significantly higher than, for example, the interest on their overdraft facility.

Most commercial contracts should contain an interest rate provision allowing you to charge interest on any overdue payments at a pre-agreed rate. If your contracts do not, your business can still charge statutory interest if another business is late in paying for goods or services, at 8% plus the Bank of England base rate (which is currently 0.1% as of 26 March 2020).

6. Accelerating Customer Pay-Out

The easy fix to potential liquidity issues is frontloading as much of the payment as you can. Pragmatically, however, this is not always realistic, and by offering a variety of incentives ranging from vouchers for discounted work in the future, discounts on current bills or additional products or services, you may be able to encourage your customers to partner with you to work through current circumstances.

Customers who are in a better position in terms of their cash flow may be willing to negotiate with you, agreeing discounts in return for accelerated payment terms. In service-based businesses in particular, where it is possible to work from home, it may be better to have your staff undertaking some work at a discounted rate, rather than no work at all.

The Government has also issued guidance notes to public bodies which encourages the identification and assistance of “at risk” suppliers. This may involve advance payments, relaxation of service or delivery targets and accelerated payment of invoices. If you are supplying to public sector customers, you should speak with them early to ensure they understand the issues you are facing and to discuss potential alternative arrangements (like re-deploying goods or services which are no longer required). More information on this guidance can be seen in our article here.

7. Negotiating with Suppliers

Negotiating with your suppliers is going to be vital over the next few months to help keep cash flow at manageable levels and to avoid falling into breach of contract if your business has shut down or is working at reduced capacity. Given the global nature of the pandemic, having frank conversations with your suppliers and adopting a partnership approach early on can foster stronger business relationships, which should continue long beyond this period. Possible compromises could include deferred payment plans or agreements regarding pipelines for future work. Businesses should also look to lower variable costs, delay discretionary spend and explore supply chain financing options.

8. Terminating or Suspending Contracts

Every business should be undertaking an audit of its current contracts and spend at this time to identify any unprofitable or unnecessary contracts, as well as any contracts it may no longer be able to deliver on in light of potential supply chain issues.

Where such contracts are identified, you should be reviewing the relevant termination provisions carefully. Although early and frank negotiations with such counterparties is critical, disputes will inevitably arise around delays, termination, suspension, part-performance or breach of contractual obligations.

Where you, or your counterparties, are unable to perform contracts (wholly or partly) in the current context, you should pay particular attention to common law rights to terminate contracts where performance is impossible (what is known as “frustration”) and any express rights to terminate or suspend performance under specific “force majeure” clauses. More information on contractual principles and force majeure can be found here.

9. Looking at Your Leases

The Government has announced that commercial tenants in Northern Ireland who cannot pay their rent will be protected from eviction up until 30 June 2020 (or potentially longer). Businesses who currently enjoy protection under business tenancies legislation cannot therefore be forced out of their premises for non-payment during this period. This is not a rental holiday, and you will still be liable for the rent.It is important that you speak to your landlord through this time, as it may be possible to agree concessions, rent reduction or other cash flow measures such as the payment of monthly (rather than quarterly) rent. More information for commercial tenants can be found here.

10. Check your Insurance

Insurance policies differ, so the terms of any applicable insurance policies should be carefully considered in conjunction with your insurance broker. Speak to your usual Tughans contact if you are in any doubt.

If you would like an initial free of charge discussion regarding any of queries regarding any of the above, feel free to contact your usual Tughans contact or Andrew Kirke andrew.kirke@tughans.com.

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