Several banks have announced measures that will help SMEs affected by the recent riots in London, Manchester, the Midlands and elsewhere.

NatWest and RBS will offer customers a range of solutions:

Fast-track requests for temporary credit increases provide short term financing to cover cost of repairs and replacement stock while businesses wait for insurance claims to be paid offer repayment holidays on existing loans to give businesses the breathing space they need to get back on their feet refund or waive overdraft fees incurred as a result of the riots on a case by case base basis. Other banks have announced similar schemes.

Meanwhile, businesses who have suffered damage as a result of the riots need to claim on their insurance quickly or they risk not being able to recover their losses, warns City law firm Reynolds Porter Chamberlain LLP (RPC).

RPC explains that most insurers require claims for riot damage to be notified within a very short period – typically seven days – otherwise the claim may be rejected.

This is because the insurer can make a claim in the policy holder’s name against the police to recover their losses under the Riots (Damages) Act 1886 (RDA). However, to do so that claim must normally be lodged within 14 days of the damage occurring.

Businesses that have suffered riot damage that do not have property insurance can also make a claim to recover their losses directly from the police under the RDA.

Stuart White, partner at RPC, comments: “Riots have caused millions of pounds worth of damage over the last few days.  Businesses that have suffered riot damage should notify their insurer as soon as possible so as to avoid being left without insurance cover. Any delay is an unnecessary risk.”

“Some independent retail units have been completely destroyed by the rioters, making them dependent on recovering the value of the damage to start trading again.”

“The good news for some of the smaller retail units that have been damaged is that even if they do not have a property insurance policy they may be able to recover the value of any damage sustained because of the rioting directly from the police.”

“However the compensation under the RDA will not normally extend to the financial losses of the business while it is unable to trade.  Trading losses are likely to be recoverable only by businesses with business interruption insurance.”

Stuart White adds: “Given the scale of these riots and the current pressure on police budgeting there will doubtless be calls to reform a law that compels police forces to compensate businesses and individuals for riot damage.”

“We will see whether insurers who cover police forces for the cost of RDA claims respond to these riots by pushing up the cost of their insurance.”

 

Accidents and crimes do happen, so it’s worth making sure your business won’t suffer in the case of loss.

For the most part, insuring the possessions of your business is much the same as insuring your personal possessions. Simply tot up what they are worth, get a quote, and if you suffer a loss, claim on the policy. But there’s a little more to it than that.

When it comes to the possessions of your business, insurers broadly divide the categories up into three separate areas: buildings, stock and business equipment.

Vehicle insurance is considered completely separate. Usually you can get a policy that covers everything, but it’s worth considering what’s involved in each.

And in these credit-tight times, financial institutions are finding it harder than ever to make any profit out of lending money.

So they’re searching around for something else, and insurance is right at the top of the list. For SMEs, this is fantastic news. The more institutions that want your business, the fiercer the competition. And this will hopefully mean better policies at lower prices.

Banks earn huge commissions from selling insurance to customers – often the bank you have your current account with will offer insurance, even though it is not the company that actually provides it – and these costs, often as much as 30 per cent of the premium, are sure to be passed on.

Buildings insurance

If you have a mortgage on your property – and in most cases if you have a business lease – this will be a compulsory product.

While the lender retains an interest in your property, it will expect you to protect it.

If your premises are burnt to the ground, repaying the mortgage will be the last thing on your mind, but it will be the first thing on the lender’s agenda.

There is no industry-wide definition of what buildings insurance comprises, but basically it is what you would leave behind if you metaphorically tipped it upside down. So in addition to the walls, windows and roof, this should include fitted kitchens and bathrooms. It should also cover any outbuildings, such as garages or sheds – although you need to inform your insurer of their existence.

Most insurers require you to set an insurable value for your property and this can be where problems arise. The insurable value is not the same as the value of the property – part of that is the land, which you will still own even if there is nothing left on it. This is true even for office blocks, as you still retain the right to use that particular space.

The figure that needs to be insured is the rebuild cost. This is what it would cost to return the property to its existing condition if it were completely destroyed. It’s much less than the value of the property, but it’s almost impossible for

non-insurance specialists to work out themselves. There are so many variables to consider – the type of materials, the location, surrounding buildings and so on.

Insurers nowadays don’t really expect you to put a figure on it. Many insurers nowadays will work out the figure for you, based on the location and type of the property, and how big it is. They will then guarantee to cover any claim if a disaster does take place.

Buildings insurance can be comparatively cheap. The most common causes of insurance claims is crime-related, and most burglars tend not to steal the fixtures and fittings.

What the premises are used for will be key – if you’re just insuring an office, you’re not going to have to pay too much, for example, but if it’s a factory where gas cylinders are kept, or a restaurant – with a high possibility of fire – then you’re going to be paying more. If you have a regular stream of customers coming on to the premises, that will add to the cost, as damage is more likely to happen.

There is also likely to be a higher price if you are the type of business that attracts criminals – your windows are less likely to be broken in a burglary if you are an estate agent compared to a jeweller, for example.

Contents insurance

While no-one is going to force you to take it out, only a fool would fore-go the security of contents insurance.

Contents insurance is supposed to cover everything to do with your business that that you use to run it – not what you sell. So computer equipment, fixtures and fittings in a shop, machinery in a factory and so on.

Virtually all contents policies nowadays are written on a ‘new for old’ basis. This means that if you claim for an item that has been lost or irreparably damaged, you will get the replacement value, not what the item was worth before the claim.

But insurance companies don’t like handing out cash to claimants; they believe it encourages fraud. What companies do is attempt to replace the items for you. To save money, they have agreements in place with major retailers to provide them with claimed items. So if, for example, your computer equipment was stolen, the insurer would request a list of the products and would acquire them on your behalf.

Stock

This is essentially everything you plan to sell as part of your business – whether it’s the contents of a shop or warehouse, or even the output of your factory. Again, the price of the policy will depend on the value of the stock you typically hold, but also its fragility and its attractiveness to crooks.

Again, jewellers are likely to pay more. It’s not only a good thing from a cost control point of view to maintain as low a base of stock as possible, it’s also going to make it less expensive to insure.

Business types

Some insurers don’t insure certain types of business. Restaurants often need specialist cover, as do hairdressers and bookmakers.

Even those that promise to insure all businesses will often load the premiums onto firms they’re not particularly keen on.

So it makes sense to shop around.

Specified items

If you have any particularly valuable items – the amount depends on the insurer, but check if anything you own is worth more than £1,500 – then these will have to be specified on the policy. You may be required to provide photographs or serial numbers of the items.

Cut costs

Your insurance policy will be priced according to the risk the insurer sees of having to pay out. So anything you can do to protect your business will reduce the cost of the policy. Most of these are security related – installing a burglar alarm or a window locks will lower the premium, for example. Different insurers have different criteria, so it’s worth contacting yours to see where you can make savings.

Bundling

While it is not always possible most insurers recommend that you take out your buildings and contents insurance together.

By doing so, you could save money because many companies offer discounts for taking out both products. But also, if one company insures both your building and your contents, there is far less chance that in the event of a claim, certain items slip through the net. Most companies have very similar definitions of what constitutes buildings cover and what comes under contents, but if there are any grey areas it could cause a lot of heartache when you least need it.

Getting paid for your services can have a real impact on your cashflow. But help is at hand.

Invoice finance, also known as factoring or ‘debt factoring’ – involves selling your invoices to a third party. In return they will process the invoices and allow you to draw funds against the money owed to your business. Essentially, these companies provide a finance, debt collection and ledger management service.

It is commonly used by businesses to improve cashflow but can also be used to reduce administration overheads. Businesses that supply this service are called factors or debt factoring companies. Invoice discounting is an alternative way of drawing money against your invoices.

However, your business retains control over the administration of your sales ledger. As well as providing finance, it offers valuable support services and credit insurance.

This guide gives information on how factoring and invoice discounting work, the advantages and disadvantages, different types of factoring and invoice discounting, the cost, and how to choose a factor or discounter.

How factoring works

Factoring provides a fast prepayment against your sales ledger. It allows you, at a cost, to flexibly increase your working capital and improve cashflow.

Factoring is offered to businesses trading with other businesses on credit terms. It is not normally available to retailers or to cash traders.

When factoring starts

Factors can be independent, or subsidiaries of major banks and financial institutions. Whatever their background, they will want to meet you, visit your business, review your financial situation and study your business plan to evaluate your suitability for a factoring facility.

Credit limits might be required – if so, you must agree how they will operate. After signing an agreement, the factor will typically agree to advance up to 85 per cent of approved invoices. Payment is usually made available within 24 hours.

Usually all sales go through the factor. Check the notice period to the end of the service – most factors require three months’ notice, but some require longer. Negotiate if you are not happy with the notice period.

Factoring is a complex, long-term agreement. It is advisable to consult your solicitor on the legal and financial implications of factoring.

When an invoice is raised

• You raise an invoice, which has instructions to pay the factor directly and send it to the customer. Send a copy of the invoice to the factor.

• The factor makes available an agreed percentage of the invoice for you to draw as you require.

• The factor issues statements to the customer on your behalf. It operates credit control procedures including telephoning the customer if necessary.

• When an invoice is paid by the customer.

• The customer should pay 100 percent of the invoice directly to the factor.

• The factor pays the balance of the invoice to you.

When an invoice is not paid

If an invoice is not paid, responsibility for paying the debt will depend on the type of agreement – either recourse factoring or non-recourse factoring.

Charges

The agreed factoring fee is taken when the invoice is received by the factor. The discount charge works like interest and is calculated against the balance of funds drawn and usually applied on a monthly basis.

There are numerous advantages to factoring, but also some drawbacks.

Advantages

• Factoring provides a large and quick boost to cashflow. This may be very valuable for businesses that are short of working capital. A business that is owed £500,000 may be able to get £400,000 or more in just a few days.

• There are many factoring companies, so prices are usually competitive.

• It can be a cost-effective way of outsourcing your sales ledger while freeing up your time to manage the business.

• It assists smoother cashflow and financial planning.

• Some customers may respect factors and pay more quickly.

• Factors may give you useful information about the credit standing of your customers and they can help you to negotiate better terms with your suppliers.

• Factors can prove an excellent strategic – as well as financial – resource when planning business growth.

• You will be protected from bad debts if you choose non-recourse.

• Cash is released as soon as orders are invoiced and is available for capital investment and funding of your next orders.

• Factors will credit check your customers and can help your business trade with better quality customers and improved debtor spread.

Disadvantages

• Queries and disputes may have to be referred on and may have a negative impact on your available funding. For this reason, factoring works best when a business is efficient and there are few disputes and queries.

• The cost will mean a reduction in your profit margin on each order or service fulfillment.

• It may reduce the scope for other borrowing – book debts will not be available as security.

• Factors will restrict funding against poor quality debtors or poor debtor spread, so you will need to manage these funding fluctuations.

• It may be difficult to end an arrangement with a factor as you will have to pay off any money they have advanced you on invoices if the customer has not paid them yet.

• Some customers may prefer to deal directly with you.

• How the factor deals with your customers will affect what your customers think of you. Make sure you use a reputable company that will not damage your reputation.

• You have to pay extra to remove your liability for bad debtors.

Suitability

Your business may be suitable for factoring and will benefit most if it has:

• An annual turnover of at least £50,000, although some factors will consider start-ups and smaller businesses.

• A good spread of customers – there  may be funding restrictions if a single customer accounts for more than about a third of turnover

• Simple, non contractual debt that is easily proven.

• Low levels of debt more than 90 days overdue.

Your business may not be suitable for factoring if it:

• Sells to the public – factoring is only available for sales to commercial customers.

• Has too many small invoices.

• Has too many disputes and queries.

• is not a sound, reputable and trustworthy business.

• Has customers that make part payments or stage payments.

• Has complex contractual arrangement or warranty provisions.

Recourse factoring

In recourse factoring, the factor does not take on the risk of bad debts. Put another way, the factor will be able to reclaim their money from you if the customer does not pay. The factoring agreement will specify how many days after the due date for payment you must refund the advance. Whether you refund the advance or not, you will still have to pay the fee and interest.

Recourse factoring is cheaper than nonrecourse factoring and may have fewer requirements concerning your customers and your systems. This is because you are taking the bad debt risk. For example:

The factoring agreement requires payment to be made within no more than three months. It also states that 80 per cent of each invoice will be advanced.

On 30 April an invoice for £10,000 is issued and the factor advances £8,000. On 31 July, if the customer has not paid, £8,000 must be repaid to the factor. There is no refund of the factoring fees.

Non-recourse factoring

In non-recourse factoring, the factor takes on the bad debt risk. It accepts specified risks around the debtor’s failure to pay, but it does not insure against debts that are unpaid because of genuine disputes. Because of this, non-recourse factoring will be more expensive than recourse factoring.

You never have to refund the advance to the factor, but you must pay interest to the factor for any advance against the invoice for the period prior to the bad debt payment being made.

The factor takes over all rights to pursue the customer for payment. This includes the right to take legal action.

Sponsored feature:

Tower Hamlets College Apprenticeships

There’s one thing in common with the employers who have recruited an apprentice through Tower Hamlets College, they all believe the experience has been hugely beneficial to their companies. The range of apprenticeships offered at the College, and the fact that the framework can be tailored to suit each individual company means that for the three businesses we spoke to in East London, hiring an apprentice is a total no-brainer.

Paul Chrisostomou is the managing director of Terra Firma Property, and has Rahima Rahman working as the first port of call for any client, tenant, maintenance worker or landlord using the property management company.

Rahima is studying an Apprenticeship in Customer Service, and as Paul says himself, she has a crucial role as she is the first face many people come across in the company.

“Rahima is just fantastic. In fact, she’s so good we’ve given her a pay rise!” laughs Paul. “I’d never have been able to afford to employ someone through the traditional channels but this is a hugely cost-effective and efficient method of getting someone who is wants to learn on the job. Rahima is now an intrinsic part of our business.

I’m so impressed both by Rahima herself, but also the apprenticeship system too, that I’ve recommended it to other small businesses in the building that I work in. I know that one of these companies has already teamed up with Tower Hamlets College to offer an apprenticeship placement there too.”

 

Munsur Ali, who heads up Spotlight, a video production company, is one of the businesses based in the same building as TerraFirma Property.

Munsur has employed Ben Mintram as a Business Administration Apprentice in his company. Ben is interested in working in media, but knows that having a business qualification in the sector will really help him out further down the line.

“I wouldn’t have been able to get a job without the apprenticeship scheme. It’s been amazing. I looked at going to university, but for me this is much better. I feel like I’ve really helped Spotlight, as well as learning a lot from them too. I’ve helped to film events, edit websites and learn about how businesses work. It’s definitely going to enable me to reach my long term ambitions of working in the media industry,” says Ben.

The feeling of ‘being on to a good thing’ is reciprocated by Munsur Ali, Ben’s boss. “The Apprenticeship system helps the apprentice and the company without a doubt, it’s a win win situation,” says Munsur. “For me, I’ve got a young, talented and energetic individual who fills a role I otherwise just wouldn’t be able to afford. For Ben, he’s getting hands on experience in a real working environment with a recognised qualification thrown in,” he added.

Tower Hamlets College helps a wide spectrum of businesses and apprentices. Alex Wiltshire is working as a Business Administration Apprentice in the construction industry. DBean, where Alex is an apprentice, is a maintenance and building company, and Alex’s role is diverse, from helping run the office, to dealing with suppliers, chasing invoices and working on pay role.

“Having an apprentice in our company has helped us share the workload and get all the tasks done on time,” says Lauren Bedford, who employs Alex. “We have found it to be very cost effective, we get to have a new employee with the advantage of them learning the skills needed in the workplace. It’s a fantastic way of helping the unemployed get both a job and a qualification.

I’d definitely recommend it to companies looking to employ new staff, as not only do you get high calibre employees, but they get training at the same time too,” she adds. Tower Hamlets College has links with employers across London and is looking to increase its pool of apprenticeships. The Further Education College currently offers apprenticeships in IT User, Business Administration, Retail, Customer Service, Finance and Hospitality and Catering, but is happy to expand its offer to deliver what is required from employers.

“Apprenticeships are a large part of the Government’s education agenda, and it is easy to see why,” comments Emilia Bortagaray,

Apprenticeship Coordinator at Tower Hamlets College. “It enables young adults, many of whom are highly talented, but are more suited to learning outside of the classroom, to have the experience and training they need to reach their dreams.

On top of that, it gives many businesses the opportunity to hire young, intelligent and ambitious individuals in an extremely cost efficient way.

“We hear success after success with the scheme, which is set to grow over the next few years. The beauty of it is that the employer hires the apprentice as they would any other employee, through interviews and/or assessment if appropriate.

The position is therefore filled with someone who is fit for purpose, but who is much cheaper to employ than a ‘standard candidate’. Obviously as the year goes on and the apprentice learns the ropes they go from strength to strength. We can adapt our training accordingly to fit in with each business, so essentially you get a bespoke apprentice per business. What could be better than that?!”

 

New figures show that HMRC is increasingly rejecting applications to defer tax payments through the “Time to Pay”.

The number of new “Time to Pay” arrangements agreed by HMRC fell by 43% over the last twelve months from 57,800 in Q1 2010 to just 32,900 in Q1 2011. The combined value of the tax payments deferred fell by 40% from £890m in Q1 2010 to just £530m in Q1 2011.

Over the same period, the proportion of applications rejected rose by 50%, with 1,130 companies seeing their applications under the scheme rejected each month in the first quarter of this year.

Payment terms are also becoming more stringent.  In the first quarter of 2010 HMRC offered 14% of successful applicants a payment plan of ten months to a year, but only 10% of successful applicants during the first quarter of 2011 were offered similar terms.   61% of “Time to Pay” agreements are now for a payment schedule of just three months or less.

“Time to Pay” was designed by HM Revenue & Customs to allow viable businesses to defer tax payments during the downturn. It has been seen by many business organisations as one of the most effective of the programmes designed by the Government to stimulate the economy during the downturn.

The latest economic data shows that the economy grew by just 0.5% in the three months to the end of March, just making up for ground lost in the last quarter of 2010.

Philip White, Chief Executive of Syscap comments: “We may not technically be in recession, but if you look at the six month trend, growth is flat-lining, so we have to cross our fingers that a double-dip recession will be avoided.”

“These new figures show that HMRC is rapidly winding down the “Time to Pay” scheme at a time when companies are clearly still struggling.”

“HMRC is being far tougher about deferring tax payments – applicants that might previously have been successful are now being rejected.”

Philip White explains that as well as battling the sluggish economy, companies have also been put under pressure by the increase in VAT, which rose to 20% in January 2011 and has strained business cash-flow.

Philip White says: “Not only are companies faced with the rise in VAT, but unincorporated businesses such as partnerships and the self-employed also need to make sure that they have the cash available to make the six monthly tax payment due at the end of July.”

Syscap says that their customers have reported significant changes introduced by HMRC to the “Time to Pay” process, including asking businesses to apply for a bank loan or even make a tax payment with a credit card, incurring an extra card handling charge, before they become eligible for assistance through the scheme.

Philip White says: “HMRC may need to reconsider their decision to wind down the “Time to Pay” scheme. The economy remains sluggish and we have yet to feel the adverse impact of the public sector cuts, which only came into effect at the beginning of April.”