For October’s CEO Insights, Gus Williams, the Chief Executive Officer at Bevan Buckland LLP, discusses the key points to managing uncertainty within your organisation.
Markets are becoming increasingly volatile as it is unclear whether interest rates will remain high for longer than expected or if the possibility of a deeper, more extended recession will cause rates to come back down more sharply. There are also lessons to be learnt from the high-profile collapse of firms like Wilko and recent concerns over the future of Metro Bank.
Managing uncertainty should always start with managing your cash balances, credit exposure, access to financing and cash flow; these are a few things every business or organisation should consider.
Manage your Cash Balances
Many businesses and charities carry significant cash balances and reserves. When inflation and interest rates are low, simply leaving these balances in current accounts has a low cost; however, as inflation and interest rates have increased, leaving cash balances in low interest-bearing accounts can represent a significant cost as the purchasing power of that cash is slowly eroded.
While larger businesses may have a Corporate Treasury team dedicated to managing their cash balances, this is a challenge for smaller businesses and organisations.
The simplest thing to do is look at your current bank’s savings rates; however, shopping around will get you the best rates. Several savings platforms give you access to a broader range of options without the need to open a new bank account each time; these include:
AJ Bell Cash savings hub | AJ Bell
Hargreaves Lansdown Savings Account | High Interest Savings | Active Savings | HL
Insignis Home – Insignis Cash
Interactive Investor Cash Savings – interactive investor (ii.co.uk)
The pros of using a savings platform are ease of use with a single login. However, there may be additional fees and not all savings products in the market may be available; there could also be minimum limits and other requirements.
You should do your due diligence, ensure that any product suits your needs, and ensure your savings are covered by the Financial Services Compensation Scheme (FSCS).
THE FSCS covers savings from risk up to £85,000 per person per institution. Note that this limit is not per account, so if you have more than one savings account with any one bank or registered firm, you will only be covered up to the £85,000 across all accounts. Check that any platform enables you to use the maximum cover the FSCS allows.
Understand Your Cash Flow
Many savings products offer better rates if you are prepared to tie up your cash for longer. An up-to-date cash flow forecast will allow you to make better decisions around savings products, better manage your business’s liquidity, and help you spot potential issues before they arise. Ensure you understand and stress test your cash flow forecast and ensure it is fit for purpose.
Understand Your Credit Score
Many businesses do not look at their credit score until it’s too late – i.e. when they are in immediate need of financing. Many companies also do not realise that there are many things they can do to improve and maintain their credit score – this can significantly impact your financing rates and credit availability. It is likely that banks are tightening their credit criteria, so a credit score that gave you access to the best rates 12 months ago may no longer be good enough to get you the best rates today.
Monitor Your Customer and Supplier Credit Ratings
Bad debts, suppliers, or customers going bust are some of the most significant risks to any well-run business. Managing your debtors efficiently and monitoring your supply chain is crucial to managing your cash flow and liquidity. Ensure you understand and manage your exposure and have an early warning process to spot any increasing risks.
Understand your Financing Options
As interest rates have risen, so have the differentials between financing costs on different products. Financing options such as asset and invoice financing can be significantly cheaper than more traditional loans and overdrafts when interest rates are higher. Understand and explore the most affordable ways to finance your business.
Try Our New Credit Monitoring and Credit Improvement Service, which includes access to a broad range of financing options
We have partnered with Capitalise (backed by Experian) to offer our clients a new Credit Monitoring and Credit Improvement service, which includes access to a broad range of financing options. Through Capitalise, we offer access to their easy-to-use credit monitoring platform. Even if you already subscribe to a credit monitoring service, Capitalise provides a better and often cheaper platform. More importantly, as part of the service, we offer an annual credit score review and improvement service included in the cost.
On average, the credit score improvement service increases a business’s credit limits by 3x. If you use trade financing, that’s increasing the amount of goods you can purchase thrice, with no interest element.
If you’re interested in learning more about this service, please contact your Bevan Buckland Advisor or send us an email