COVID-19 and UK Tech SMEs: Overcoming cashflow issues

Cashflow, the net amount of money coming into and out of a business, is an essential sign in establishing the health of many organisations.

This is particularly true of small and medium sized enterprises (SMEs), which typically lack the cash reserves of larger companies. Instead, they rely on predictable monthly turnover to ensure operations run smoothly. By extension, cashflow issues can be extremely serious for smaller businesses that have little buffer to account for a sudden drop in incoming cash, or indeed a sudden rise in expenditure.

However, the coronavirus pandemic has had – and is continuing to have – a damaging effect on the UK’s private sector, with businesses of all sizes and sectors facing significant challenges. And cashflow issues have been chief among these.

From market uncertainty and stockpiling supplies to supply chain disruption and operational upheaval, COVID-19 has triggered numerous problems for business leaders needing to keep a firm grasp on their cashflow.

So, looking to the UK tech sector, how have early stage businesses fared during this difficult period? And, more importantly, what can these companies do if they are facing cashflow issues?


Joint research conducted by Lloyds Bank Commercial Banking and UK Tech News has delved into how the country’s technology SMEs have been affected by the pandemic – more than 100 business leaders within UK tech companies were surveyed in the first two weeks of August 2020.

The study found 42% of UK tech firms have been unable to sell to their usual customer-base since the beginning of the lockdown period in late March. Indeed, in the midst of the pandemic, 48% said they have had to pivot their product or service to ensure it better suited the current climate.

More positively, 66% of the decision-makers surveyed felt that their tech firm had responded “well” or “very well” to the challenges brought about by COVID-19. Further, 59% of those companies who have pivoted their business model in recent months said the changes they have made will be implemented for the long-term, rather than reverting to their pre-pandemic state.

However, the research from Lloyds Bank Commercial Banking and UK Tech News also underlined how prominent cashflow issues have become this year. Just over half (55%) of UK technology businesses have experienced cashflow issues since the imposition of lockdown measures.


Advice for those experiencing cashflow issues

Clearly, cashflow issues have become particularly commonplace as a result of the pandemic. But what can tech business leaders do in this situation?

Develop a clear picture

The first step is to undertake a thorough audit of the business’ finances – which is vital to understanding precisely what is coming in and going out. A business can only develop an effective plan once it has a clear picture of the extent of the problem and how manageable it is.


Unfortunately, late payments also remain a critical problem. In fact, the aforementioned piece of research by Lloyds Bank Commercial Banking and UK Tech News found that 43% of UK tech businesses have experienced more problems than usual with late payments as a result of the coronavirus pandemic.

These late payments put a lot of pressure on cashflow, not to mention a lot of stress on business leaders. Again, while the problem of late payments is not unique to SMEs, these companies feel the strain more as they lack cash reserves to fall back on.

So, what can tech businesses do to combat the problem?

It is important to be proactive when tackling late payments. Firstly, it is advisable for businesses to perform credit checks before starting work with new customers; if doubts are raised during this due diligence, request the customer pays in advance.

To minimise delays, ensure all invoices have the correct information on them and that they are issued promptly. If the terms of a contract are missed with regards to payment dates, push customers to honour the agreement – there is nothing wrong with expecting customers to stick to the original terms.

It is beneficial to have a clearly defined escalation process around late payments, too. This process should only be relaxed in particular circumstances; otherwise, consistency will help.

However, before escalating matters, it can be useful for tech businesses to invest time into understanding how their different customers approach payments. Some businesses will have a set payment frequency – for example, they will settle invoices every other Friday. So, if you issue invoices with payment terms that do not fit this cycle, it is likely that the customer will constantly pay late. In such instances, exceptions will need to be made to your typical protocols.

For ‘problem payers’, a sterner approach might be required. It is always wise to directly address the issue with a customer if it becomes a consistent problem; there may be some underlying financial issues on their part that could have unwanted consequences.

Furthermore, if a customer is paying on time but has imposed long payment terms in their contract, do you need to change the price that you charge them to reflect the additional funding costs from the delays?

There are a lot of questions to be asked, of both your own business and of your customers, when combatting late payments. Ultimately though, while enforcing payment terms for customers and suppliers may feel uncomfortable at the time, it is simply good business practice, and good suppliers and customers – as fellow businesses – will understand your situation.

Identify and manage risk

When looking to balance cashflow, it is also important for tech SMEs to identify and manage risks. This point has become more pertinent in the context of COVID-19; the pandemic has forced colleagues to work remotely and for businesses to rely on new practices – and perhaps technologies – to keep operations running. In doing so, there is a chance that businesses could be exposed to a higher level of cyber security risk, which in turn could further damage its finances.

Business leaders must assess where risks currently lie – both internal and external. In addressing or accounting for these risks, SMEs will be better placed to ensure cashflow is protected from potential hazards further down the road.

Effective risk management strategies will be critical for businesses emerging from the COVID-19 crisis. As the economy begins to re-open, there are three important themes to consider:

  1. Managing financial risk in a changing world

It is important to note that a switch from unstable financial markets to those that have partially normalised is a form of volatility in itself, which makes risk management decision-making even more challenging. In the near and medium term, there could be scheduled and surprise macroeconomic events, both in the UK and globally – and these may require businesses to promptly adapt their operations.

As businesses re-open into an environment vastly different from the pre-COVID-19 era, there are three immediate priorities: liquidity, cash-flow forecasting, and the resilience of new or existing commercial partners.

There are a range of approaches to mitigate liquidity, financial market, and counterparty credit risk. Importantly, businesses must put themselves in a position where they can adapt to uncertain future demand levels while simultaneously maintaining margins. This, in turn, helps to mitigate profit and loss swings and provide flexibility for when market conditions improve.

  1. Building a resilient supply chain

For many years, businesses have been focusing on supply chain optimisation to minimise costs and reduce inventories. In doing so, many companies have removed buffers and flexibility to absorb disruptions. For example, COVID-19 has turned these previously perceived strengths of ‘just in time’ inventory levels into potential weaknesses.

In light of the disruption caused by the pandemic – particularly from a logistics and supply chain perspective – tech SMEs should consider these key areas: 

  • Mitigate supply shock: work closely with existing suppliers while diversifying the supply base
  • Manage demand volatility: preserve inventory and find a cost-effective way to finance it or simply find alternative channels of distribution
  • Make the workplace safe: invest in enabling a safe infrastructure for staff to work within, using online channels and app-based technologies wherever possible
  1. Risks homeworking can bring to your business

Since March 2020, many UK businesses have switched to remote working. However, if they had not embraced this model previously, said companies might not have the technology, policies and training in place to support them securely; they may also be relying on employees’ personal IT equipment.

Best practices include: developing a homeworking policy appropriate to your business and technology capability; enabling device encryption to protect stored data; making offline backups of data regularly; avoiding the use of open public Wi-Fi networks; educating employees to spot suspicious phishing emails; and training staff to safely use collaboration tools.

Where to turn for financial support

It is important for the UK’s tech companies to know that they are not alone. There remain a number of government-backed financial support schemes, as well as many options for raising funds privately.

Tech SMEs must remember that the landscape is constantly evolving when it comes to both private and state support. The government schemes – many of which were introduced in March, April and May – are being revised on a regular basis. Indeed, almost half (49%) of the UK tech businesses surveyed by Lloyds Bank Commercial Banking and UK Tech News said they have found it complicated to navigate the various financial support schemes for businesses that have been introduced by the Government in response to the pandemic.

Government support

Two of the most prominent government-backed schemes that tech SMEs may wish to explore include:

  • Coronavirus Business Interruption Loan Scheme: The CBILS is available for businesses with a turnover of up to £45 million – companies can apply for between £50,001 and £5 million, with a term of up to six years. Businesses do not pay any interest or fees for the first 12 months of the loan.
  • Bounce Back Loan Scheme: The BBLS is entirely government-backed, with loans of between £2,000 and £50,000 (up to a maximum of 25% annual turnover) available for businesses, with a term of up to six years. Bounce Back loans can typically be applied for online – with no repayments required for the first 12 months, and they have a fixed interest rate of 2.5%.

More information about these lending schemes and how to apply for them can be found here.

The Future Fund is another government scheme that could be of interest to tech SMEs:

  • Future Fund: The Future Fund scheme provides government loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors. The convertible loans are appropriate for businesses that are unable to access other government business support programmes because they are either pre-revenue or pre-profit.

More information about the Future Fund can be found here.

Institutional funding and private investment

However, financial support for UK SMEs is not limited to state-backed initiatives. Many of the avenues for private funding and investment that early stage tech businesses would typically explore remain open for business, although businesses might find it more difficult to raise capital from these sources in the current climate.

Industry data suggests that between 23rd March and 19th July 2020, UK startups raised £2.67 billion. This is down 39% when compared to the same period in 2019.

A more cautious approach from venture capitalists and angel investors is understandable, given the level of uncertainty brought about by COVID-19. It is important, therefore, that tech SMEs – particularly those experiencing cashflow issues – are aware of the funding options that lie within these institutions.

Lloyds Banking Group has committed £2 billion* to help customers manage any ongoing cashflow needs caused by supply chain interruptions or employee absences, and to minimise the disruption to their overall business operations over the coming weeks and months.

Lloyds Bank Commercial Banking has facilities such as invoice finance, overdrafts and term debt. Furthermore, as part of Lloyds Banking Group, we have Lloyds Development Capital as part of our portfolio, our private equity business which for over 35 years has built a proven track-record of backing management.

Avoiding feelings of isolation

Feelings of isolation are common among business leaders, particularly during challenging periods; when cashflow problems strike, difficult decisions must be made, and stress levels rise. Indeed, the research carried out by Lloyds Bank Commercial Banking and UK Tech News revealed that 82% of business leaders within UK tech SMEs have found the past six months more stressful than normal, with 54% also saying that they have felt isolated and alone during the pandemic.

The entire business ecosystem must work together to combat the issue of loneliness and mental health. Business leaders must be provided with support during this testing time; trying to overcome the hurdles presented by COVID-19 alone can feel insurmountable, but conversations with experts who can help with problems like cashflow, organisational changes, late payments and financial support ought to present SMEs with viable solutions.

Supporting British businesses and the UK economy continues to be a central part of what we do at Lloyds Bank. We have grown our lending and support to businesses across the UK for this very reason: to help with day-to-day business needs.

Our relationship managers are experienced in the tech sector and are keen to support further growth of this vibrant industry. Please get in touch today to discuss how we might help your business, too.


Darren Cable, Area Director Technology, Media and Creative at Lloyds Bank Commercial Banking

07841 780 343 ||

For more information about how Lloyds Bank supports UK tech businesses, click here.

*Figures obtained from Lloyds Banking Group press release dated 23rd April 2020.

All lending is subject to status.

Lloyds Banking Group is a financial services group that incorporates a number of brands including Lloyds Bank. More information on Lloyds Banking Group can be found at

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