The impact of Covid-19 on SME business debt

From March last year, CNG witnessed an influx of businesses battening down the hatches to prepare for an economic hit as the first lockdown was announced. Since then, we have been tracking the impact this has had on customers’ energy bill debt across lockdown 2 and 3.

Figure 1 shows CNG customer debt rose by £4 million in May 2020 compared to 2019. It came as no surprise that there was an influx of direct debit cancellations as businesses struggled to pay their bills due to loss of income in lockdown 1.  There was a glimmer of hope throughout the summer months as the gap closed to £3million when businesses began to re-open, but widened again as Lockdown 2 came into play in November. As lockdown 3 was announced and it wasn’t anyone’s first rodeo, we saw debt levels steady with many swiftly pivoting to new income streams through e-commerce and alternative product lines.

When looking at how regions fared across lockdown 2 and 3, London saw debt levels fall, with only 3 other regions, Scotland, North West and the South East seeing marginal debt improvements. All other regions saw debt compounded.

Figure 3 shows the rising debt levels from lockdown 2 to lockdown 3 across all sectors. Some of the worst hit surround leisure and hospitality. Typically high energy users, we saw the ripple effect across the industry on debt and consumption as many have been unable to recoup income to the same levels. We have seen hotels remain semi-operational to accommodate media production companies, temporary alfresco dining when lockdown measures were reduced, a la carte restaurant home delivery services and even pubs becoming village stores. The creativity to retain income has been phenomenal but still hasn’t plugged the gap that has been caused by the lack of footfall. Whilst there is an undercurrent of excitement for June and beer gardens being full, built up debt suggests many businesses will be on a longer term build back to stability.

Customers who had never had prior debt pre Covid were left asking many questions for how they were going to pay their bills. The combination of livelihoods being at risk and the emotional strain many owners were under required CNG to revisit business as usual credit control processes to respond to an unprecedented situation.

In response to the rise in debt, CNG dropped late payment charges. Payment holidays were also offered to those who required further support. For closed businesses, estimated bills based on previous usage were cancelled and reduced to a basic standing charge. Regular communication with different business sectors and regions as Tiers were introduced helped to determine different trading circumstances so this could be noted on their account. Some decided to completely shut up shop, others had chosen to trade at a reduced capacity.

For businesses who have never been in debt before this can be a stressful time. Below are some tips for SMEs who may be feeling the strain.

  1. Review all outgoings and scrutinise those that could be stopped or reduced significantly. Be sensible on what you wish to achieve and where value can be driven in your business.
  2. For all essential outgoings discuss more favourable payment terms. Ask for payment plans to alleviate the pressure on lump sum payments or in some cases you may be able to apply for a payment holiday. Review your predicted income and the peak of cash flow for what works for you. The more pro-active you are to show willingness, the more likely it will work in your favour.
  3. Check all current Government financial support available for businesses during Covid-19 and what you may be eligible for.
  4. Consider alternative methods of income to top up lost revenue. Easier said than done, but many local business services are supporting communities with webinars, workshops and free tools to help them consider their options; such as upskilling on how they market themselves, transitioning to ecommerce, creating a website or simply networking with other businesses with similar debt concerns.
  5. Consider a short-term business loan. Check the rates for what is affordable and achievable for you to pay back. Not all businesses were able to access Government funding and have looked to other lenders to better their business in readiness for growth. Our partners at Think Business Finance can support with applications for the Coronavirus Business Interruption Loan Scheme (CBILS) ahead of the 31st March deadline. Businesses can find out more here.