The pandemic has triggered a drive for 'good old fashioned banking'
25 June 20
25 June 20
The press is full of articles about people’s feelings at the end of lockdown. Some claim that they are not looking forward to it; that they have liked the quiet and the chance to live at a slower pace, but most people are looking forward to a freer, more social life and are prepared to pay the price for it in terms of noise, crowds and less time. So they are getting ready to queue at Primark, to invite people round again. Embarrassingly, I had to get the AA out to jump start my car whose battery had drained. I needn’t have been so embarrassed though - they said that they had been working flat out (!) to charge batteries and re-inflate tyres as the UK gets back on the road.
For businesses, coming out of lockdown can only be better than the alternative. But it is not necessarily a straightforward process. Most businesses need to change the way they operate to a greater or lesser extent; some will probably have to wait some time before they can get their turnover back to “normal”; and many will want to change their supply lines to make them more resilient and a bit more local.
All of these things will cost money, and at a time when cash has slowly drained away like the charge in my car battery. That said, government assistance has been life-saving for businesses and jobs.
All businesses need working capital; the capital which is used, not to invest in plant or machinery, but to pay the bills while you wait for the revenue to come in. Particularly in the last 20 years or so, reducing working capital, by shortening the gap between paying creditors and collecting debtors, by cutting down on the quantities of stock or raw materials you hold, and by keeping cash reserves low, has generally been seen as a good thing.
There has been more just-in-time ordering and zero hours contracts, which are features of a low working capital environment. Several reports have ranked companies on how “good” ie low, their working capital position was, and how much it had “improved” over the past year. Unsurprisingly, perhaps, businesses in the developed, consumer economies, such as the UK, were more successful at doing this than businesses in developing countries which supply them. The larger and more powerful a company is, the easier it is for it to cut its working capital requirement by squeezing its smaller suppliers or customers.
Being efficient with working capital is good for shareholders – it often increases their returns, but businesses need to be resilient as well as efficient. I suspect that many businesses will now be reviewing their working capital along with their supply chains. Just-in-time ordering makes it harder to diversify your supply chain – and it wasn’t only toilet rolls, PPE and condoms that were hard to come by in lockdown. Many construction materials and engineering components were also in short supply. The UK will want to make its own PPE, and UK construction businesses will want to have more than one supplier of window frames, even if both of those strategies end up costing a little more.
Triple Point’s leasing and lending businesses lend to thousands of UK-based small businesses and we have been part of the package which has helped them through lockdown. Alongside government assistance in the form of grants, the furlough scheme and time to pay tax, we have given time to pay interest and repayments due on our lending. Our borrowers have generally coped very well with lockdown, but even with all of that help they have still been eating into their cash reserves.
The UK’s Small and Medium-sized Enterprises are the engine of our economy and coming out of lockdown is not just a question of turning the key. They need our support, just as much as during lockdown, in the form of well-designed working capital facilities or additional investment in order to re-stock, bring staff off furlough, and re-start the sales process.
Triple Point leasing and lending businesses are well-capitalised and liquid, and actively lending to small businesses. We are proud to be approved for accreditation under the Coronavirus Business Interruption Loan Scheme (CBILS), which reinforces our commitment to helping business owners find their way through challenging times.