Your guide to maintaining cashflow during COVID-19

To say that a lot has changed recently would be the understatement of the century.

For all SMEs, including those in the recruitment, consulting and staffing space, the current state of play is changing constantly. With the overwhelming amount of information released – a lot of it misleading and contradictory – it’s easy to feel confused and rightly scared about how the impact of COVID-19 will affect the life blood of your business – your cash flow.

I want to cut through the clutter, present the facts and outline some simple, proactive and positive steps you can take now to help your business survive Coronavirus.

So, how does what’s happening in the economy affect your recruitment, consulting or staffing business?

Australia is currently experiencing an economic downturn, with businesses in most sectors forced to shed staff leading to record unemployment figures.

We will see an increasing reduction in discretionary spending as businesses tightening the reins on permanent placements that aren’t deemed absolutely paramount to their ongoing operation, as they juggle cashflow and JobKeeper eligibility to retain existing team members.

Businesses may opt for more temporary or contract placements to hedge their bets over the next six months or so, which could present opportunities for savvy recruiters with funding flexibility.

Clients could be requesting varied payment terms. They could also be stretching payment terms to uncomfortable levels without negotiating extensions, or worse still, without communicating at all.

Some clients may be using the current economic situation to stall payments in order to improve their own cashflow and strengthen their war chest, without considering long-term supplier relationships.

You may have heard that any application for financial hardship must be accepted as mandatory, but this is not the case. You have the right to assess and investigate each application on a case-by-case basis and in line with your standard policies.

What steps can you take now to help protect and manage cashflow and the viability of your business?

1. Keep the communication lines open

  • Frequent, open and transparent communication will be critical in how your business weathers this storm. Building positive, long-term relationships is key to your success in the recruitment industry, and when this chapter ends (and it will end!), those relationships will be more important than ever.

  • Check in with your customers via a personal phone call to see how they’re faring and show your support.

  • Also keep connecting with your team, your creditors and your suppliers.

  • Consider what form of communication is most appropriate for your specific audience. Would a Zoom or Skype video call, a phone call, or an SMS be preferable over yet another email?

2. Show compassion and be flexible where possible.

  • If your clients are genuinely having difficulty paying, take a compassionate approach as much as you are able.

  • If they ask for payment extensions, or changes to existing T&Cs, try and make a plan together that works for both parties. This investment may distinguish your business from competitors in the future.

  • Remember to document any changes to agreed terms appropriately.

  • Consider offering more flexible payment arrangements such a pay-on-time discount, or direct debit.

3. Remain vigilant!

  • No matter how long you’ve been servicing your clients, continue to credit check and monitor them for any signs of financial stress – especially in these challenging times.

  • Sign up with a credit bureau. First, ask them to review your whole portfolio to identify any red flags. You’ll then be sent automatic alerts of any worrying signs on an ongoing basis so you can make a swift and informed decision.

4. Make it easy to get paid

  • Ensure all invoices are correct, accurate and easy to read to help avoid any delays getting paid.

  • Technology is your friend! Use e-invoicing, and if you have Government clients, register for their express payment plan.

What are your options if they still won’t pay?

  • If you are struggling to get an account paid, bring in the experts sooner rather than later. Professional, licensed debt collectors can negotiate effectively on your behalf. Taking on negotiations yourself can be stressful and time-consuming, especially at an emotionally charged time such as this.

  • Despite current misconceptions around recent legislation changes to insolvency laws, businesses do have legal recourse in the event of unpaid debt.

In every jurisdiction in Australia, it is still possible to launch legal action, even if a hearing needs to take place via telephone instead of face-to-face.

Secured creditors are still able to take or enforce securities with no restrictions. (Some exceptions may apply to financial institutions). The jury is still out on whether COVID-19 is a classed as a Force Majeure event, and no one rule applies. You should seek legal advice that pertains specifically to your case.

What steps should you think twice about?

The Australian Government has introduced some major changes to insolvency proceedings to provide temporary relief for financially distressed businesses.

The following changes apply for six months from March 25, 2020 and should be considered carefully before launching any proceedings:

  • The minimum debt amount for creditors issuing a statutory demand or initiating bankruptcy proceedings has increased.

  • The time a company has to respond to a statutory demand has increased from 21 days to six months.

  • The time a person has to respond to a bankruptcy notice has increased from 21 days to six months.

  • Directors may be relieved from any personal liability for trading while insolvent for six months (Safe Harbour).

Optimum Recoveries offers specialised services in debt prevention, debt management and debt recovery.

If you need tailored assistance to help you navigate these strange waters, call us on 1300 556937, email: amcdonald@optimumrecoveries.com.au or go to www.optimumrecoveries.com.au

We love our relationship with RCSA and its members and are here to help.

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