Matic Media MD sets out fears for business

Richard McCombe, MD at Scottish-based large-format PSP Matic Media Services, has issued an open letter setting out his fears for business amid the COVID-19 pandemic in the hope that trade bodies can bring weight to bear and improve matters.

He says: „The reality of the situation is that businesses are required to finance the furlough of staff until such time as the Government can get the repayment sytem up and running, likely to be through PAYE. The government has put in place a loan system which until Saturday many banks were requesting to be underwritten by a director's guarantee. Most will not do this. So the government made a statement that it will support 80% of the loan leaving the bank to catch the 20% if there is a default. The biggest problem is that applying for the loan (18 pages) will take time and the banks are overloaded. Many SME's can't get access to all the management information quickly enough to justify a sound business case to authorise a loan. The banks will only load to those they think can trade out of slow down. Reading between the lines I interpreted a conversation with my bank to mean we should be planning for a worst case scenario over a 6-12 month period. In terms of the Government backed wage support plan - 80% to reduce the amount of redundacies - what employees may not be aware of is that their employer must furlough them to be able to apply for the 80% government support. That mean the employer needs cash - a lot of cash - because the business has to fund this until the Governemet has the repayment system in place. This problem is compounded by the fact that many customers are not paying . For example, we received a remittence for £35K last Thursday but have been informed that that was made in error and they will not be paying right now. This customer owes us £60K. Larger businesses may use this type of behaviour to eradicate the smaller suppliers and use this to acquire the business when they become insolvent. Payment from one business to another will slow down or stop. This will mean that businesses run out of cash. The consequence of this is that businesses need the cash to pay their staff the 80% government backed furlough payment. If the businesses can't fund this then employees will not get paid. So the question is, how long can a business wait for the Government fund to pay for the 80% of wages? There is nothing in place yet and this may not be in place by next month - by 28 April - when the next payment run is due. Businesses may need two to three months of cash to pay employees who are furloughed. Many will not have this, not be able to borrow quickly enought, may not have a solid business, may not be paid for the work they are awaiting payment for and... will simply not survive. This will result in mass unemployment if businesses cannot rise large amounts of cash. Those who may survive will need cash reserves or access to cash quickly. I don't even want to start on inflation. Businesses with loans can requests payment holidays allowing the repayment period to be extended. This is ideal because this reduces a burden on cashflow, but this is not the same for a fixed period rental (e.g. a company car). A car rental, like a company car, has a fixed period. A holiday payment on this will result in the payments still being made after the vehicle has been returned. Businesses will use their VAT collected and due to fund the business to stop it becoming insolvent and their is nothing in place to get a VAT reduction but there is a VAT holiday. But it is still due in the long term as it stands. Finally - this is like a disaster movie.