As the coronavirus pandemic continues to spread, countries around the world are increasingly restricting travel and trade. At the same time, consumer confidence is falling and stock markets are tumbling. Going forward, it’s expected that large public gatherings will be banned, schools will be closed, and workers will do their best to self-isolate, working from home whenever possible.
While grocers might be temporarily experiencing a boost in revenue due to panic buying, the economy overall is preparing for the possibility of recession. On 12 March, the FTSE 100 suffered its worst day in over 30 years, falling by over 10 per cent in a single day, and 30 per cent over the past 3 weeks. This comes as investors respond to the implications of disrupted global supply chains and collapsing oil prices as commerce slows down all over the world.
As the global economy slows, and some countries slip into recession, UK businesses can expect to face reduced demand, supply chain disruptions, and cash flow interruptions. To mitigate damage to the economy, the government is taking steps to reduce the burden on businesses. At the same time, businesses are looking for cash flow solutions to help them deal with setbacks as they arise.
The government is working to support businesses and protect the public
Chancellor of the Exchequer, Rishi Sunak, recently released the UK’s 2020 budget, detailing a number of measures responding to the coronavirus crisis. Businesses with a rateable value of less than £51,000 will be eligible for a tax holiday, providing them with sorely needed liquidity. Very small businesses with rateable values under £15,000 will be eligible for cash grants of up to £3,000. Meanwhile, medium sized businesses with up to 250 employees can reclaim the cost of providing statutory sick pay (SSP) to employees self isolating due to the coronavirus from the first day of illness, rather than the fourth.
The government has also committed to supporting self-employed and gig-economy workers to ensure that anyone who suspects that they might be ill with the coronavirus has the necessary support to stay home and isolate themselves.
The Bank of England announces an emergency rate cut
On 11 March, policymakers reduced interest rates from 0.75 per cent to 0.25 per cent — bringing borrowing costs back down to the lowest rate in the country’s history. This will make it easier and cheaper for businesses to borrow the funds they need to maintain their operations during what might well become a recession. More importantly, it will enable some beleaguered businesses to refinance their existing debts, reducing their monthly payments and helping them to keep their books balanced.
Businesses need short term cash flow solutions to deal with changing conditions
While it’s unclear exactly what the future will bring, businesses can count on ongoing economic turbulence in the coming months. Different countries will take various measures to mitigate the impacts of the pandemic, and to protect their economies. As a result, supply chains might be disrupted, travel to various countries will be restricted at times, and consumer confidence at home and abroad will fluctuate.
This will inevitably result in cash flow disruptions that businesses need to adapt to quickly in order to avoid operational disruptions. In order to get the liquidity they need to accomplish this, it’s important that they get informed about short term financing tools, such as invoice financing and supply chain finance.
Invoice finance is a way for businesses to access additional funds on short notice by bringing in revenues early. They do this by financing an invoice —exchanging it for an immediate cash payment. The financial institution accepting the invoice will pay out most of its value up front before collecting payment from the client. Then, once the payment is received, the business receives the remaining funds.
Supply chain finance, on the other hand, helps businesses by extending their payment terms by up to 90 days. This is done by working with a financier to pay suppliers whenever a payment is due. The business then pays the financier back up to 90 days after the original supplier invoice date. In the meantime, that working capital can be repurposed to manage other pressing needs.
UK businesses will face significant turbulence in the coming months. By taking advantage of the support offered by the government, and making the most of the financial tools at their disposal, they can not only mitigate the damage, but may even be able to consolidate their markets and drive growth as less-prepared competitors struggle.