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Building for the future | Impact of Covid 19 on Construction Sector Finances | Invoice Finance Connect
Building for the future? Impact of Covid 19 on construction sector finances 800 533 Invoice Finance Connect

Building for the future? Impact of Covid 19 on construction sector finances

The coronavirus pandemic is arguably having a greater and more rapidly changing impact on the construction sector than most, with many projects halted overnight at the start of ‘lockdown’. Even before the outbreak, the industry was already experiencing Brexit-related uncertainty, and last September it recorded the biggest drop in new projects since the financial crash a decade earlier.

The crisis is likely to have strong structural effects on construction’s supply chain, some of which may not be felt until later in the year; even when a business starts work again, often they won’t see any cash for up to 60 days.

Global consultancy Mace suggests construction firms could see a reduction in turnover of £29bn in this year’s second quarter. It adds:

“There is a possible time bomb for smaller businesses … from the third quarter of 2020. This will only be exacerbated by clients deciding to withhold or delay payments and the end of the government’s job retention scheme.”

Meanwhile, according to the Office for Budgetary Responsibility (OBR), output could be down 70% in the second quarter of 2020, hitting cashflow significantly for those without adequate cash reserves or strong balance sheets.

Equally, for production lines and manufacturing plants, operating is only financially viable above a certain volume, while many building products are the same as those used on domestic projects. With many households freezing work, demand for construction supplies could slip below the breakeven level.

Government support packages are in place, but the Construction Leadership Council (CLC) says just one in 10 building firms which had applied for this emergency finance following Covid-19 disruption had succeeded. Around a third had had their applications rejected, while the remainder were awaiting a decision.

The Institution of Civil Engineers (ICE) indicates that some four in 10 firms were applying for this help to meet short-term funding needs, suggesting a reluctance of other lenders to work with the industry.

Challenges the industry was already facing

Historically, the UK’s construction industry has not seen traditional lenders willing to provide finance, especially where a loan is not secured against an asset, although more specialised lenders now serve this market.

At the same time, projects’ high upfront labour and bulk materials costs can have significant cashflow implications, as do many building schemes’ long lead times. And, unfortunately, the sector is also known for delayed payments and billing terms which are stretched out as much as possible.

Construction industry finance: the background

The construction industry has many sub-sectors and lots of mutual interdependencies, with main contractors regularly managing (and paying for) dozens of sub-contracts, each of which is often worth £50,000 or less.

Especially in the public sector, the industry makes wide use of framework agreements, or umbrella arrangements in which an organisation agrees with one or more supplier (including contractors, sub-contractors  or consultants) on the terms for a long-term relationship during which the employer may award one or more contracts. So, it’s a strategic partnering relationship which, in practice, can range from a loose arrangement with preferred providers to something more formal.

External project financing can take the form of loans, shareholder funds, grants, venture capital, subsidies, donations, crowdfunding, and the like.

How we can help

Invoice Finance Connect works closely with the construction sector to help it overcome its challenges, and we understand the industry well. We’re keen to strengthen these relationships during the current crisis.

We work primarily with regional and local operators with turnovers of up to around £50m, matching them up with the best-suited lenders. Contact us to talk through your options.

Bad Debt Protection | Credit Insurance | Help With Non Payment of Invoices
What Is Bad Debt Protection & Why Might You Need It Now? 800 533 Invoice Finance Connect

What Is Bad Debt Protection & Why Might You Need It Now?

How it works  

Bad debt protection, or credit insurance, is a mechanism whereby companies can cover themselves against the possibility of invoices not being settled by their customer base.

Clearly, this safeguarding gives business owners peace of mind if a customer doesn’t pay their bills, whether that’s due to insolvency or failure to pay within the agreed credit period. This can be bolted on to an Invoice Finance solution easily, whether it be a Factoring or Invoice Discounting facility and of course acts as great deal of comfort for the company’s funder.

Non-payment of invoices can have serious cashflow implications for businesses, and this negative impact on income may in turn affect relationships with suppliers and other creditors.

In most cases, organisations will be able to use their insurance policy to claim up to 90% of the value lost through unpaid invoices. It can also be tailored to encompass different risks, from work in progress to binding contracts.

Exporters can also protect themselves against political risks.

What are the benefits?

As well as reassurance and peace of mind over payments, other benefits of having bad debt protection in place are:

  • It’s potentially easier to secure trade finance: Lenders are often happier to provide trade finance, and on better terms, if a business has this cover.
  • Protects cashflow: Clearly, being able to collect the funds you are owed is a big help in staying on top of cashflow.
  • Better trading terms with suppliers: Suppliers who know you have taken these steps to protect your business are more likely to want to negotiate improved terms.

What does the price of policies depend on?

As with other kinds of cover, the price is linked directly to the amount of turnover you are looking to protect, and the risks to which your business is exposed.

Your industry, your customers and their locations, plus your own track record in credit management will also all play their part when it comes to cost.

Why might I need this now?

The Covid-19 situation has clearly led to huge uncertainty for businesses across many sectors, with numerous companies suffering from financial struggles. So now could be an excellent time to think about protecting yourself against the prospect of bad debts.

And while no one thinks twice about covering their physical assets such as stock and buildings, protection against the debtor book can often be overlooked.

It’s also a good time to be thinking about this because the government announced recently that it would temporarily guarantee business-to-business transactions backed by debtor protection policies, via a temporary reinsurance arrangement. This was introduced when insurers started to contemplate withdrawing cover and increasing premiums.

How we can help

At Invoice Finance Connect, we are extremely well placed to discuss bad debt protection with you and connect you to the market leading providers within the sector. We have access to an extensive range of solutions according to individual needs, plus many years’ industry experience under our belts.

Talk to us even you already have cover; we may be able to help you secure a better deal. Let us discuss your options as we all adapt to difficult times. Whatever your particular needs or situation, get in touch today.

Covid-19 & Its Toll On Recruitment Industry Finances | Invoice Finance for Recruitment | Invoice Finance Newbury | Recruitment Finance Newbury
Covid-19 & Its Toll On Recruitment Industry Finances 800 533 Invoice Finance Connect

Covid-19 & Its Toll On Recruitment Industry Finances

Clearly, businesses everywhere have experienced disruption from the coronavirus. But the impact on the recruitment industry has been particularly significant. After all, it’s a people-focused business, not one intended to be conducted at a 2m distance.

It’s a sector that had seen steady growth over the last five years, with the market valued at nearly £39bn last year, as the UK enjoyed low unemployment. But recent figures have shown the sharpest decline in the industry since the 2008 crash, as unemployment is expected to rise this quarter to levels not seen since 1983 and claims for Universal Credit have soared 910%.

Many organisations have had to downsize, close completely, lay off staff, reduce employees’ hours, or are using the government’s Job Retention Scheme (furloughing). In many cases, start dates for new hires have been delayed. Organisations including travel operator TUI have understandably frozen recruitment completely.

So while a 2019-2021 growth prediction of 3 to 6% for the industry was made in recent months, the picture now looks very different.

Tough on agencies

Agencies in particular risk a lengthy wait before employers start to outsource the recruiting process again. This can bring particular financial difficulties. Not least the drop in income but also, as activity returns, cash flow issues as an agency may have to pay a placed employee’s wages at the end of a working week, but not be reimbursed until the end of the month by the client.

Additionally, agencies need to be aware of organisations such as GRI, which operate between agencies and end clients and impose strict trading terms on outsourced recruitment solutions, which in turn can have an impact on their ability to secure funding. GRI can be a huge issue for those agencies that utilise Invoice Finance for their working capital as many lenders have challenges due to the nature of the contracts and also securing bad debt protection where GRI feature.

A survey of 300 industry professionals conducted in April by performance marketing specialists Talent Nexus and others found that more than half (55%) of agencies had either made or were considering redundancies, while only 9% of in-house recruiters had already cut jobs.

There were similar discrepancies when it came to issues including reduced working hours, salary cuts and furloughed staff.

Recruitment in numbers

Between February and March 2020, according to the Covid-19 REC jobs outlook survey, employer confidence plummeted by more than 20 percentage points, although short-term demand for temps rose by 15 percentage points.

Of course, the outlook isn’t universally bleak. While retail, leisure and hospitality work all but ground to a halt overnight, with 46% of staff in those areas expected to be furloughed, demand for staff in supermarkets, pharmaceutical, medical professions, food production, cleaning and delivery soared.

Some areas of fintech and tech are also currently highly sought-after, as are those in delivery, logistics and company restructuring, alongside anyone supporting and enabling home schooling or remote working.

What about the longer term?

Of course, no one knows for sure how or when this crisis will end. But a swift return to a working life that’s exactly the same as it was pre-Covid seems a remote possibility. Some form of change is likely to be with us for the long haul, possibly permanently. Recruiters, like everyone else are having to adapt.

That could mean greater (and better) use of recruitment technology, more online interviews, more home-based working, more temporary contracts and smaller hiring budgets.

At the same time, however, the UK’s recruitment sector is strong and resilient, so it stands an excellent chance of making an effective comeback.

How we can help

At Invoice Finance Connect, we can help your recruitment business in the short and long term, so that you continue to thrive throughout this crisis and ride out any immediate financial issues, while also being poised to return to maximum capacity as soon as possible.

This also includes assisting those agencies where GRI feature as a customer, each lender will have their own approach, however there are Invoice Financiers out there that will fund this debtor and of course we use our experience to match the financial needs of the agency with the right funding partner.

We have many years’ experience working with recruiters, and offer numerous different solutions from invoice discounting, factoring to bad debt protection. We can even help you improve any deal you may already have in place with an invoice finance provider. Whatever your particular needs or situation, get in touch today to learn how we could help – we’ll discuss your options for adapting to these challenging times.

Impact Covid-19 had on Business Finance | Help with Invoice Finance | Invoice Finance Berkshire
What Impact Has Covid-19 Had On Your Business Finances? 800 533 Invoice Finance Connect

What Impact Has Covid-19 Had On Your Business Finances?

When Boris Johnson announced unprecedented restrictions to daily activities on March 23, it brought the life of the nation to an abrupt halt. As well as being a national health crisis costing tens of thousands of lives, the pandemic is also an economic emergency.

A recent Oxford Economics report commissioned by chartered accountancy body ICAEW predicted that GDP could shrink by 14% in the second quarter of this year, the biggest such decline in almost a century. It forecast the UK’s deficit could reach £290bn or 14% of GDP in 2020, the largest since World War II and exceeding even the 2009-10 previous record of 10.2%.

However, it added that recovery should be swift given the unusual nature of the cause of the decline, and that the rise in unemployment could be a relatively modest one to 7% in the year’s final quarter, due to the government’s job-protection furlough scheme.

But, equally, recovery could be hampered by any extension of the lockdown, a second wave of the virus, the ending of government support too quickly, the collapse of the Brexit trade talks or if long-term economic damage turns out to be worse than feared.

In May, the Bank of England issued a bleak warning of a 30% GDP slump with the loss of 1.5m jobs and predicted that the economy would not bounce back until next year.

Winners and losers

Amid the hardship, inevitably some firms have survived (and thrived) better than others. Media streaming service Netflix has seen a surge in subscriber numbers, while fashion firm Boohoo increased its year-on-year sales in April thanks to high demand for smart tops for Zoom calls, alongside leisurewear. This despite footfall in British shops imploding by some 90% since the beginning of March.

At the same time, Laithwaite’s Wine increased its prosecco sales in April (up 117% year-on-year). Demand for smaller bottles was particularly high as people enjoyed a glass of fizz while chatting to friends and family online.

Anything related to home-based exercise and fitness has also proved popular, from apps and classes to clothes and equipment. The Tone & Sculpt app, for example, saw an 88% growth in downloads this spring. Similarly, those selling goods for home crafting and baking have done well.

Interestingly, online retail giant Amazon has said it could post its first losses in five years, its 28% rise in income offset by the costs of hiring 175,000 extra staff, overtime, PPE and disinfecting its warehouses.

Supermarkets have posted rises in sales, following initial panic buying and stockpiling, while Morrison’s has warned trading remains ‘highly volatile’.

Of the sectors struggling, education is one of the hardest hit, with a 90% reduction in output according to the Office for Budget Responsibility (OBR). Meanwhile, the hospitality, construction and manufacturing industries have all lost more than half their output.

Adapting to survive and thrive

Clearly, many companies have adapted, shifting business online, offering home deliveries and so on. One gluten-free café in Reading has been delivering kits for making donuts at home kits, as one example.

Meanwhile, the Bread Ahead bakery in London’s Borough Market, found new ways of keeping its three stores going. Live Instagram baking sessions led to 25,000 new followers in five days after restaurant orders halted, while online sales and collections from stores have increased.

Looking to the future

Clearly, reopening a business post-lockdown comes with its own costs and risks. Cashflow may be tricky for companies that have not been trading recently. Previous customers may not all return immediately, and health and safety measures may restrict footfall on your business premises.

There may be additional expenses like staff training, protective equipment or signage. Equally, business could be affected if you supply a sector such as the travel industry and there is limited demand for what you offer.

Rather than just picking up where you left off, you may need to combat a potentially lengthy period of uncertainty. That may mean what Accenture calls an ‘active reinvention’ of your brand, perhaps with more agile operations and variable cost structures.

Many will have to adapt to a new and changing situation at speed.

How we can help

Support for businesses is available from the government in various forms, including relief for income tax, VAT and business rates.

The government’s Job Retention Scheme, or furloughing, pays 80% of salary up to £2,500 monthly, provided staff do not work for the employer while furloughed. It began on April 20, and after two weeks nearly a quarter of UK workers had taken up the arrangement. It’s currently due to last until the end of October.

However, none of these schemes can last indefinitely. Once the furlough programme ends, employers will be able to bring back workers full or part-time, pay for them to be furloughed for longer or consider redundancies.

Once the various sources of finance are wound down, any loans or other bills need paying, and it may not be possible to do this immediately. Businesses need a cashflow plan in place now to improve cashflow once the government help stops.

At Invoice Finance Connect, we have more than two decades’ industry experience so are ideally placed to connect you with the best ongoing source of short-term and longer term funds for your business, whether that’s invoice finance, supply chain funding, asset finance, trade financing or anything else.

Contact us to discuss your specific issues and discover what support is available and how we can assist.

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