Due to an internal political struggle, the United States government has suspended all “non-essential” government workers, including 88 per cent of the Internal Revenue Service (IRS) workers. President Trump has publicly warned that the shutdown could drag on for many months, which could lead to serious disruptions for businesses both in and outside the United States. Australian, UK, and Irish businesses who operate and pay taxes in the country, for example, could experience major delays in the processing of their tax returns. Additionally, the shutdown is threatening to disrupt air travel in the US, potentially causing delays, or eventually even forcing airports to shut down.
Companies who do business in the US need to be aware of the potential difficulties that this situation could produce for them. That means getting educated about any possible impacts on your business, while also ensuring that your business is prepared to manage any cash flow interruptions that may result. By dealing with this now, businesses can prevent potentially adverse effects on their business, while also protecting their growth efforts and ongoing projects that could be endangered by a cash flow issue.
Vital US institutions and businesses are vulnerable
At a glance, the American political crisis isn’t obviously relevant to businesses halfway around the world. Its effects on vulnerable American workers, though, will rapidly begin to impact everyone who does business in the country.
While the IRS has announced that it will recall its workers to launch its tax season on January 28, it will do so without pay. If the shutdown continues, it’s not likely that many of those workers will be able to forego a paycheck for months on end, with many citing serious financial difficulties. Transportation Security Administration (TSA) workers at US airports are already quitting their jobs in numbers, with some affected individuals stating that losing just one month’s pay thus far has already placed them on the brink of homelessness. The result of this is that, if the shutdown goes on long enough, it will bring both the IRS and the TSA to its knees through employee attrition. Even if a budget is approved, these institutions will be forced to hire and train new workers before business as usual can be resumed.
Of course, the issue doesn’t just affect government employees. US businesses that rely on government contracts are also beginning to feel the effects, as payments are halted and stop work orders are issued.
Businesses should prepare for cash flow interruptions
Regardless where they’re from, businesses who pay taxes in the US, rely on travel to or within the US, or who have American clients or suppliers that have federal contracts may be affected. They might lose business partners, suffer payment delays, or be forced to manage logistical delays, all of which could quickly translate to late or reduced revenues. To ensure that this doesn’t translate to potential difficulties, it’s essential that businesses prepare appropriate cash flow management solutions.
Invoice financing allows businesses to work with their financial institution in trading in their outstanding invoices for a majority of their value immediately. This allows businesses to get the funds they need quickly, and can allow them to mitigate the impact of a client who is late in paying. This is particularly relevant in this case, as some American clients may become temporarily unable to service their debts.
Supply chain finance
Supply chain finance is a tool that allows businesses to free up working capital that would otherwise go to pay suppliers. This works by making supplier payments out of a credit fund that’s supplied by a financial institution’s investors, rather than out of the business’ current working capital. That working capital can then be used for other urgent matters, and the balance on the fund can be paid off at a later date.
Unsecured business loans
Unsecured business loans can be secured much more quickly than traditional business loans, and are a great way to come up with funds when invoice financing or supply chain finance aren’t enough. Not only are they much more convenient for businesses in that they don’t require any collateral, they’re also much faster to access. While a traditional loan can take weeks or months to process, an application for an unsecured business loan can be processed in hours or days, depending on the business’ prior relationship with the financial institution.
While the US shutdown currently still has the feel of a far-away situation, its effects will begin to reach businesses all over the world soon. By being aware of any potential complications, and being prepared to manage any resulting cash flow issues, you can ensure that your business won’t suffer any adverse effects as a result.