The concept that could help small businesses survive the pandemic
As governments around the world maintain health measures to limit the spread of the coronavirus, more businesses are struggling to keep up with the changing circumstances. Some have been forced to close their doors, while others look for other ways to keep their engine running through the pandemic.
One of the ways businesses could survive is by relying on customers through ‘forward pay’.
The concept is based on the idea that customers could pay upfront – through voucher, subscription or other means – for goods and/or services that they can use in the future.
“A business could seek to sell products or services, for example in the form of vouchers, to get some cashflow now to help get through this tough period,” said Lacey Filipich, author and founder of Money School.
“It means delivering those products or services ‘for free’ when trading can resume, so that extra commitment needs to be accounted for. But it might be enough to switch a business from failing to surviving.”
According to Filipich, small businesses looking to avoid going into debt could benefit the most from this approach.
However, some precautions need to be taken. By taking payments, the business commits to deliver the promised products or services after social distancing eases up.
“By then, the money you’ve taken in ‘forward pay’ may have been absorbed in simply keeping the business afloat during pandemic lockdown,” Filipich said.
“So, you’ll need to account for the extra resources in the future if you spend the money now.
“It would be worthwhile being transparent about the risk of the business not being able to make good on its pre-paid services if it was unable to continue trading after the pandemic.”
Filipich also recommended getting professional advice to avoid breaching laws.
Other reliefs for businesses in these turbulent times include a ‘softening’ of trading insolvency laws and increased debt thresholds for a statutory demand.