Coronavirus Considerations: Banking and cashflow
A consequence of the Coronavirus situation is the immediate financial impact on businesses caused by things such as contracts not being fulfilled, reduced customer footfall and increased costs due to having to find alternative suppliers. Many businesses will find their cashflows stressed for reasons completely outside of their control. Even if a force majeure can be proved (see above) and a business has a strong contractual right to claim for damages, businesses will need to ensure that they take steps to ensure they are around long enough to bring a claim.
Along with the other steps that can be taken as mentioned in this note such as reviewing credit and other insurance policies, we would recommend the following:
- Speak to your lenders. If you have finance in place and there is a risk that any of your financing terms could be breached, contact your lender(s) to discuss. You are far better served by entering into dialogue with your lenders to explain the situation and request some flexibility. Lenders do not like to be told of issues at the last moment and be forced into making decisions
- Manage your cashflows. Review all expenditure and critically assess all planned costs and identify any savings that can be made, deferring expenditure if possible
- Review your supply chain early to determine if supplies are likely to be affected and if so try to source alternative suppliers
- Review agreements with customers to establish liability if you cannot meet your obligations. If this could happen, speak to your customers early and seek to extend delivery terms.
It is inevitable that some businesses will face severe financial difficulties, even insolvency, as a result of Coronavirus. Every business needs to be aware of the impact on its business and to the extent that external funding is involved, it always pays to involve your lenders as early as possible to give them as long as possible to consider anything they can do to support you.