Amanda Dorel, regional director for Lloyds Bank in Wales, discusses some of the steps businesses can take to help overcome challenges and bolster their resilience as we head into 2022.
Supply chain shortages are causing noticeable disruption in the lead up to Christmas, as queues of shipping containers stacked with goods destined for the shelves mount up at UK ports.
It comes at a time of year where demand is typically high and, with offices closing and more people taking time off from work than usual, customers’ payment times can be longer. This can put a real strain on sometimes already stretched finances.
Businesses can’t be complacent and need to ensure they have a sound strategy to build resilience. And while every business’ approach should be tailored to its specific needs, there are some general steps firms can take to give them the best chance to prosper.
Get to grips with cashflow
A sound focus on cashflow and working capital is essential for all firms to ensure their finances are fighting fit.
Businesses should map out potential risks, put in place robust contingency plans, and explore options to streamline their operations if appropriate. Conserving cash, finding ways to reduce costs and being competitive on price should always be a priority.
Closely managing working capital can not only help firms to respond to sudden short-term challenges but it can also enable them to make important strategic decisions quickly.
Know what funding options are available
There are a number funding options available to businesses to make sure that a sudden spike in demand or pause in payments doesn’t have a damaging impact on cash flow.
Financial products such as arranged overdrafts and business credit cards can help businesses to avoid developing pressure points within their operations, and if firms are after more sizable or long-term cashflow requirements, invoice finance and asset-based lending can be valuable finance solutions.
Invoice finance allows firms to access up to 90 per cent of the value of an invoice within 24 hours of it being issued. The lending amount increases with the value and number of invoices your business sends, allowing access to extra cash to manage increased seasonal demand. This guarantees that funding will be available if a third party has taken time off for the Christmas holidays, for example.
Asset-based lending allows businesses that have capital tied up in existing stock, plant and machinery or property to use these assets to access further capital. Money can be released from these assets into the business, which can then be used to buy more stock and materials.
For many new and smaller trading businesses, understanding and forecasting how working capital can ebb and flow may be daunting.
But with a little help, businesses can assess their chances of over- or under-trading. Lloyds Bank’s working capital management tool can help firms identify cash flow pinch points, while allowing our relationship managers to analyse the working capital cycles of businesses and assess financial opportunities and challenges.
There is no doubt that the months ahead will bring challenges, but there will also be opportunities for businesses that are quick to react. The right preparation can ensure firms are in the strongest possible position, whatever the future holds.