Is your small business one of the millions that have been unable to trade as normal and seen turnover fall as a result of the coronavirus? With working capital issues being experienced across a broad range of industries, making sure there’s enough cash to pay bills, buy stock and operate effectively is proving to be extremely challenging.

The culture of late payments and the time lag between completing work and receiving payment can be challenging enough at the best of times, but when levels of new work are down and customers and clients are delaying payments to maintain their own cash flow, the situation can become critical.

In this guide, we look at the potential methods you can use to boost your working capital and prevent a rapid decline that could otherwise lead to your business’s closure.

Negotiate with creditors

If you have bills that you know you will not be able to pay on time, it’s always advisable to contact your creditors before you miss a payment. Your creditors know the trouble so many businesses are in, so landlords, suppliers and even banks and commercial lenders will be more open to giving you longer to pay and negotiating an informal repayment plan.

To discuss bills that you are struggling to repay with your creditors, it’s usually best to do so over the telephone. You should explain why you are struggling to make the payment and offer an affordable and realistic payment plan. You should follow up with the details in writing for the benefit of both parties, although the agreement will not be legally binding.

Consider HMRC’s Time to Pay Arrangement

If you have a tax bill that you will not be able to pay on time, you should contact HMRC at your earliest opportunity to try to make a Time to Pay arrangement. Access to this scheme has been widened to help the rising number of businesses that are struggling to make their tax payments due to Covid-19.

The government has already introduced schemes to defer VAT and self-assessment income tax payments, but if you need more assistance, a Time to Pay arrangement can give you up 12 months to pay outstanding PAYE, National Insurance contributions, corporation tax and VAT. To be accepted for a Time to Pay arrangement, you’ll have to make a strong business case and show how you will be able to make the payments over the longer term.

Apply for a Bounce Back Loan

The Bounce Back Loan Scheme was introduced as part of the government’s coronavirus business support package to get emergency funds to small businesses within 24 hours. To date, 1.3 million businesses have been approved for loans of between £2,000 and £50,000, up to a maximum of 25% of annual turnover.

One of the primary benefits of the Bounce Back Loan Scheme is its very attractive terms, with no interest to pay for the first year. After that, interest is charged at a fixed rate of 2.5% per annum. The loan is also 100% backed by the government. That doesn’t necessarily mean a Bounce Back Loan will be written off if your business cannot make the repayments, but it does provide some protection for business owners and company directors personally.

Explore your alternative funding options

If you’re unable to secure a Bounce Back Loan or cannot access adequate working capital support from the government, you should consider other funding options.

If you have a high-value debtor book, invoice factoring or discounting could allow you to free up the cash tied up in the invoices you have issued to your business customers within just 24 hours. Alternatively, you could be cash poor but asset rich, in which case, you could sell assets such as property, machinery and vehicles or include them as a part of an asset refinance arrangement to provide a cash lump sum.

One of the advantages alternative funding has over traditional lending methods such as business loans is that it involves less paperwork and can be put in place far more quickly. That makes it an excellent option in a cash flow emergency.

Think about protective insolvency measures

If your business is facing pressure from creditors but you feel that it is financially viable over the longer term, there are formal insolvency procedures that could protect your business from closure.

A company voluntary arrangement, also known as a CVA, is a legally binding agreement to repay your creditors over time. A licensed insolvency practitioner will help you create a repayment proposal to present to your creditors. If 75% of your creditors agree to the proposal, you will have between two and five years to repay your debts, in part or in full, while continuing to trade. As long as you stick to terms of the agreement, then your creditors will not be able to take legal action against your company.

Alternatively, you could go into administration. An insolvency practitioner will be appointed to take control of the business and try to put a rescue plan in place. This procedure provides protection from your creditors for an eight week period while the rescue plans are developed. If the business cannot be saved as a going concern, assets may be sold or the company could be closed.