Expert Roundtable – Managing the road to recovery

Simon Underwood and Giuseppe Parla of Menzies LLP joined by the CICM Technical Committee, chaired by Sue Chapple

Unprecedented financial support during the pandemic has helped UK businesses to weather exceptionally tough trading conditions and keep cash flowing. However, the time is nearing for business owners to stand on their own two feet. But what does a return to ‘normality’ really look like and what does it mean to businesses and customers?

In a recent poll, more than two thirds (66 percent) of businesses confirmed they had been obliged to make changes to their company in response to the pandemic. Atul Vadher, CICM East of England branch chair, was not surprised: “I have seen fundamental changes in the way businesses operate, from the way they look at debt to their approach to trade and product,” he says.

However, while changes have been seen across the business landscape, the responses of individual sectors have varied widely. In retail, there has been a focus on online retailing, while delivery-based models have come to underpin the more successful hospitality companies.

Mark Wilkinson, Head of Income for Northumbrian Water Group, said, “Adjustments have had to be made in the utilities sector at times during the pandemic, with businesses having to alter their processes and stop sending employees to customers’ houses. And on a broader level, consumers have had to adjust to bill increases, with people working at home and using more water during the summer and heating during the winter.”

Extraordinary times
In such extraordinary times, it is only natural that businesses have been forced to review their working practices but, as the UK begins to creep back towards normality, the question is whether those changes that businesses have been forced to make will continue in a post-COVID world.

Most think that many of the changes witnessed in retail, hospitality and utilities sector are, to a certain extent, likely to remain. Online retailing has been a long time coming, with a long-term decline of the high street confirmed by the recent collapses of Arcadia and Debenhams. And while there is a yearning to return to restaurants, the rise of ‘ghost kitchens’ and food delivery models are providing the hospitality industry with plenty to ponder, as investors look to the greater Return On Investments that these models are presenting due to reduced overheads.

What is interesting is that the businesses that have succeeded during the pandemic have shared one common factor: flexibility. Simon Underwood, Partner and Licensed Insolvency Practitioner at Menzies, believes such ‘flexibility’ remains vital to a sustained economic recovery: “The return to another lockdown, or a shift in the Government’s economic policies, means the ability to ‘flex’ to a newfound environment is critical,” he says.

But there are other measures, he says, that can help ensure a smooth return to ‘normal’: “Businesses must preserve cash where possible and strengthen the balance sheet,” he explains. “No-one knows what is around the corner, and businesses need to make sure they don’t find themselves in the position that so many were in 12 months ago, with no income and no cash to fall back on.”

Giuseppe Parla, Senior Manager and Licensed Insolvency Practitioner at Menzies, agrees: “It is important that businesses seek advice as soon as possible from credit professionals, rather than relying on the State and watching Government support run out,” he adds.

Strengthening relationships
Sue Chapple, CEO of the CICM, says that one upside to the pandemic has been a strengthening of the relationship between credit managers and their clients, as well as improving their own visibility in the businesses in which they work:

“COVID has brought home the importance of really getting to know your clients and understanding their credit risks. This is something that has declined in recent years with the rise of technological solutions, and an element that the industry must revive if it is to thrive in the difficult months and years that lie ahead.”

Looking to the future, Simon Underwood expects to see the credit sector heating up in the coming months, with the end of the moratorium on debts as well as the cessation of the furlough scheme and other Government support: “It’s remarkable in many ways that the country has avoided a greater financial crisis, but the brunt of the Chancellor’s measures will fall on the pockets of the taxpayer,” he says.

“This leaves us with several questions: how will this shortfall be addressed in the short and longer-terms? And how will the credit sector continue to provide the personal, relationship-centric approach that has seen it largely weather the storm that the last 12 months has brought?”

These questions will remain unanswered for the next few months at least, though in the meantime there are valuable lessons for businesses and credit professionals to take from the COVID-19 crisis that should help alleviate some of the anxieties towards returning to normality.