It is not just the weather that is getting better: restaurants are fully booked; city centres are bustling again and the vaccination programme is exceeding expectations. The question for SMEs is no longer how they will weather the storm, but how they will get ready for the commercial upswing as the economy opens up again, particularly when it comes to managing cashflow and adapting to a business environment that has fundamentally changed.

To take the temperature of UK businesses, Allstar Business Solutions surveyed 500 SME business owners and senior decision makers at the end of 2020 and found that, as one would expect, many businesses were facing a difficult climate marked by uncertainty, cuts to spending and low cash reserves. That is something that is beginning to change, and we are seeing those changes as more customers buy more fuel and make more business purchases – sure signs that economic activity is returning.

The COVID-19 impact

Amongst survey respondents, 29% reported having to shut down operations because of the pandemic, with 55% spending on making their business COVID-secure. The general downturn in income manifested in companies cutting or reducing pay rises (36%), employee travel (33%), expenses (28%) and worst of all numbers of employees (30%). Only 9% of companies reporting that they had not cut back anywhere in their business due to the pandemic.

Unsurprisingly, much of the impact of the pandemic came in the early stages, with 51% of SME respondents reporting that the months when they experienced the most financial pressure were April, May and June of 2020. In these months, during the first and toughest lockdown many businesses came to a standstill which was reflected in a ~80% drop in B2B travel related expenditure and a ~60% drop in supplier payments across many segments, so this makes sense.

Most worrying were the reports of lost business and revenue due to the pandemic – 38% of businesses said that they lost business during the period, 28% said that they had to be more cautious with money, 23% made budget cuts and 40% said that their primary concern was uncertainty about how the pandemic would continue.

The importance of cash flow and working capital

For many SMEs, one of the most cited problems was access to cash flow in the second half of last year, and this is one of the places in which Allstar Business Solutions can offer solutions.

Although every company is going to have its own unique problems and solutions when it comes to cashflow, there are a few checklist items that all SMEs should tick off as more opens up and society returns to some nearer form of normality. The first is to check that you can still rely on the working capital solutions that you had in place before the pandemic: has your bank changed its rates? Can you still rely on your overdrafts or short-term loans when needed?

Then there are your suppliers. Can you still rely on your supplier “trade accounts” and payments terms and do you need new supplier relationships that you can fall back on when needed? Consolidating your buying power with strategic supplier relationships may be a way to negotiate better payment terms in return for more business – suppliers will be as eager as you are to secure new business now that the general economy is trending upwards so make sure you are rewarded with better terms or early payment discounts as your cashflow improves.

The government has also helped significantly during the pandemic by injecting more cash into SMEs than ever before, providing a lifeline for many businesses during the pandemic.  Although some government support programmes are still going, most will be coming to an end soon which means SMEs will need to find alternative ways to support cashflow as they are gearing up for doing business again.

Lastly, one encouraging sign in the survey that SMEs should take note of was how many companies chose to make paying for expenses entirely or partially digital during the pandemic – 54% of all companies surveyed. Digitisation was a major theme throughout everybody’s life during the lockdown, and SMEs were no exception. A trend that most likely is here to stay.

Empowering businesses to go forward

A digitised expenses system and company payment cards is just one place for companies to start building their working capital back up after a lean year. If you have had to cut business travel, like a third of Allstar’s SME customers, then you and your employees could be back on the road soon and managing your expenses with the right payment model can free up working capital to use where it matters.

If you are still managing expenses on a ‘pay and reclaim’ model, where you and your employees need to pocket receipts and enter each one manually into your accounting software then now is the time to modernise. The extra costs in time and money of doing everyday transactions like paying for a delivery vehicle’s fuel or buying office stationery can be significantly reduced and the savings can be reinvested back into your business.

Most importantly, issuing your employees their own individual payment cards does not just streamline admin work but shows trust and encourages initiative without losing control and oversight – without your employees being out of pocket. We are all coming out of a time when employees will have felt insecure at their jobs and changing the way you deal with an often-contentious issue like expenses will be a great way to make their work lives easier and show them that things are looking up in the “new normal”.

Author: Thore Vestergaard, MD of Commercial Payments at Allstar Business Solutions. 

Allstar Business Solutions is the UK’s market leading business and fuel expenses card provider, with over 40 years expertise. Accepted at over 90% of fuel sites across the UK, it has over 1.1 million cards in circulation across 50,000 businesses, giving drivers access to fuel spend across supermarkets, major oil companies and motorway fuel stops. The network encompasses around 7,700 sites nationwide.