As the economy slowly but surely starts to re-emerge from the Coronavirus enforced lockdown, businesses are beginning to switch their focus away from survival and towards re-opening and how to do this from both a practical and financial point of view.

The gradual winding down of support measures (furlough, VAT deferrals etc) will leave businesses facing a new set of challenges, such as potentially operating on a reduced capacity with a full workforce, changing supplier or customer terms, and catching up on deferred liabilities to name but a few!

Whilst the Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme introduced by the government have assisted businesses with much needed financial resources during the lockdown period, many are now looking to the next round of fundraising to support opening up their businesses and inject much needed working capital to assist with day-to-day cashflow requirements.

Working capital support can come in many forms, such as an overdraft, trade finance or invoice finance. The key to implementing an efficient working capital facility is to analyse and understand your working capital cycle (the amount of time taken to convert your stock into cash) and put facilities in place around this to address any cash shortfalls. The working capital cycle of a business can change overnight with increased orders, changing supplier or customer terms, or late payment.

Typically businesses need support when looking to purchase stock or whilst awaiting payment from customers, or both.

Overdrafts

An overdraft is an ideal facility to assist with this as these are inexpensive and are not tied to direct transactions like trade or invoice finance. However, because of this exact reason, lenders prefer more structured facilities which are directly related to purchases or accelerate being paid by customers.

Trade Finance

Trade finance facilities allow businesses to purchase goods without having to use their own cash, on terms which exceed those offered by your supplier. This allows businesses to retain cash in the business whilst still purchasing stock.

Invoice Finance

Invoice finance allows businesses to access the majority of cash tied up in business to business invoices on the day that the invoice is raised, with the rest being accessed once the debtor pays.

It is widely expected that these types of finance will become increasingly popular over the next 12 months as businesses exit lockdown and look to access much needed working capital support.

Through our expertise and network of lenders, we at Elliott Laverty are ideally placed to assist you with identifying your working capital cycle, talking you through your funding options and negotiating with lenders to obtain the most commercial terms on your behalf.

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