How can Escalate help ease the current liquidity & cashflow squeeze?

Escalate co-founder Nick Harvey recently took part in a ‘Toolkit for Tough Times’ webinar organised by specialist business lending platform and Escalate partner firm Capitalise. 

During the webinar, Nick provided invaluable advice to SMEs that want to improve their cashflow during the current Covid-19 pandemic.

We’ve summarised the key points of Nick’s advice below, and also included the video extract from the webinar:

The legal market is in a state of flux

The legal market is caught up in a delicate balancing act at the moment, between individuals and companies who have legitimate pre-existing claims to pursue, and otherwise healthy, viable businesses that are now having short term cashflow problems and liquidity issues. 

The government have responded quickly to this challenge through a range of new measures. Some of the key changes being introduced include a 90 day moratorium on creditors being able to present petitions against businesses, relaxations or extensions on the rules against validation orders, and more protection for directors.

The real battleground for lawyers will be where a company has hit the buffers and can demonstrate it is primarily the result of the fallout from Covid-19. The courts are likely to be supportive and more lenient in such situations. On the other hand, cases involving a pre-existing state of insolvency are likely to treated in much the same way as before, albeit there will be additional delays and challenges. 

Lawyers and courts will be working hard to distinguish between those two scenarios of ‘won’t pay a debt’ versus ‘can’t pay due to the turmoil caused by Coronavirus’.

Courts remain open, but on a restricted basis 

There will be inevitable delays, but some courts are still open and working on a triage system for emergency cases, holding telephone hearings where possible.

One potential challenge with the current situation is that every business is being given ‘a comfort blanket’, which can create a risk of inertia. It’s the perfect opportunity for debtors to kick the can down the road and put off a problematic debt that’s owed, since everyone is being given more time and breathing space.

Escalate’s message is that enforcement is still possible – ADR (Alternative Dispute Resolution) is still happening, and online Zoom mediation is taking place. Once the dust has settled, lawyers will be working hard to show that debts existed even pre Covid-19.

Cashflow was a big problem even before Coronavirus

British SMEs had £131 billion tied up in late payments before Coronavirus was even on the horizon, according to research by accounting software provider Xero. The issue of late payment will unfortunately be exacerbated as a result of Covid-19, even with the proposed cash injections being provided by the government.

More recent research by the British Chambers of Commerce, which is running a weekly Coronavirus Business Impact Tracker, revealed that three weeks into the crisis, 59% of firms have three months or less in cashflow reserves. A worrying 6% of firms have already run out of cash.

How can finance teams and accountants help right now?

Finance teams and accountants have a key role in this scenario, especially if a case ends up in court and accounts need to be dissected to show a pre-existing cashflow issue. Taking the opportunity right now to do some accounts housekeeping and making sure that houses are in order, could be invaluable further down the line. 

Looking at outstanding debts, chasing up late payers and overdue invoices, and communicating in a reasonable way will remove some avoidable delays. If there are wait times in the court process, your business will be ahead of the game if you do the groundwork now. Being pro-active about this is still within your control – those who shout the loudest sometimes get paid first.

How can Escalate help your cashflow?

As outlined in a second follow-up Q&A based webinar with Capitalise, Escalate operates in three core areas – debt recovery, dispute resolution and insolvency. The one common denominator across all of the areas is that, when we take on a case, we’re investing our money into it and have confidence in winning that case. 

The defendant in each case is made aware from the start that our client is fully funded all the way to the High Court and therefore bears no personal risk. This in turn puts pressure on them to come to the negotiating table much earlier on in the process. As a result, we have an excellent success rate. Escalate is a unique, contingent solution, and there’s no other solution like it within the commercial dispute market.

If your business has been affected by any of the issues raised, or if you need some advice on tackling a commercial dispute or late payment, please get in touch with us or one of our partner firms.