Ensuring Adequacy of Financial Resources

On 18 March 2020, the FCA released information for firms in relation to coronavirus (COVID-19). In line with other government advice, the emphasis is on firms being able to provide continuing support to customers. As expected, a part of the messaging is around financial resilience. 

“[The FCA] also expect firms to manage their financial resilience and actively manage their liquidity. Firms should report to [the FCA] immediately if they believe they will be in difficulty”.

Liquidity is clearly going to be the priority as buying decisions change and customers take steps that could lead to cash collection problems. 

The FCA published guidance on liquidity and financial resilience in its consultation paper in June 2019 – Assessing Adequate Financial Resources and that remains a useful source of guidance reminding firms to think about liquidity and the quality of their assets. It also articulates the FCAs view around liquidity stress scenarios which could be useful in firms modelling and assessing their liquidity position in the context of the FCAs requirements.


Any firm’s approach should start with cashflow modelling. While we don’t know the likely length of the impact of COVID-19, all firms can look at cashflow burn rates, including analysing discretionary spending and carrying out scenario analysis to understand the situation. This will be time well spent as any future funding conversations will start with questions around quantum. Running scenarios around short term trading issues over 12, 16 and 20 weeks with longer term hits to profitability could be a useful first step. 

Firms will also need to factor in modelling of any of the governmental support packages below. With the government funding packages not releasing cash until possibly the end of April the assessment will need to take into account the short-term impact which might be mitigated by some of the other initiatives through HMRC. 

We recommend that firms look at all funding approaches in parallel, together with thinking about ways to secure their future income streams as well as existing debtors. Escalate – a business that we work with helps recover overdue and disputed debts for SMEs such as MGAs – can also help you unlock cash from your debtors


A ‘Coronavirus Business Interruption Loan Scheme’ – delivered by the British Business Bank and available from 40 accredited providers – will provide loans of up to £5 million.  The loans will now be interest free for the first 12 months (previously six months) to support lending to small and medium sized businesses (defined as those with turnover of no more than £41 million per annum).  The scheme will be available from Monday 23 March although we expect some delay before it kicks in. 

PKF are working with our funding partners to ensure we are at the forefront of how firms can access this funding. 

The position can be monitored on the British Business Bank website. 


As part of the ‘Coronavirus Job Retention Scheme’, certain wage costs may now be funded by a Government grant of up to 80% of salaries up to a maximum of £2,500 per employee per month – but the announcement seemed to imply that this grant will only apply to employees who are unable to work, or where work is no longer available in the short term (such as in the hospitality and leisure sectors, where businesses have now been mandated to close).  It is unclear what impact this will have on those sectors less obviously affected by the current difficulties, but where employers are considering redundancies as part of wider cost-cutting measures – we await the finer details.  It will be administered by HMRC, backdated to 1 March and open initially for three months. HMRC is working to have the scheme in operation ‘in weeks’ and to make the first payments before the end of April.


There are a number of measures that firms might take to help themselves as they start to feel the pressure:

• The 20th of March announcement will have an impact on the usefulness of HMRC’s Time To Pay (TTP) scheme, which enables businesses to defer their tax liabilities.  
• The obligation to pay VAT liabilities due in the next three months has been suspended (no business will pay VAT for the next quarter with all VAT payments deferred until end of June).  Businesses will be given until the end of financial year to repay any liabilities – this represents a £30 billion cash injection by the Government.
• The 31 July Self-Assessment payments have been automatically deferred to January.  
• For the self-employed, the minimum income floor will be suspended. This is calculated by considering the level of national minimum wage and the number of hours you would be expected to work. Instead, individuals will be able to access in full Universal Credit at the rate of Statutory Sick Pay for employees. 


Many firms have significant debtor books and, with changing payment appetites, this could lead to liquidity problems. However, debtors on the balance sheet can be viewed as an asset against which you can secure financing.  For example, you may be able you take out trade credit arrangements on new invoices or work – although, the appetite for this from insurers may change rapidly. 

Simple measures such as operational improvements around billing and debt collection go without saying.

Things to consider include:
• Improved / accelerated billing and debt collection processes
• Invoice discounting / factoring if available
• Trade credit protection if available

What should you do if you feel you are in difficulty?

If, after carrying out a cashflow forecast, establishing your liquidity position and assessing what measures might be available, you conclude the firm is going to be in difficulty we suggest that early engagement with the regulator may be helpful. 

In our experience, the FCA prefers early engagement and assurance that the management team is taking its regulatory responsibilities seriously. If you have a well-considered plan in place to address any regulatory issues then it is likely that the FCA will be supportive of your plans, provided there is low risk of detriment to customers.


The team at PKF is available whether you need assistance with cashflow modelling, funding or regulatory capital advice. In the event you are concerned, our restructuring team is available to give you guidance on your obligations and duties. 

John Needham
Partner – Intermediaries Team
PKF Littlejohn (MGAA Supplier Member)
0207 516 2284

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