Like many industries, the construction sector has also been affected, with many sites forced to close for months on end and new machine acquisitions delayed or cancelled.
There is hope in the guise of solutions from Case Construction Equipment (a brand of CNH Industrial) that helps organisations. It offers a range of tools and practices to help manage this risk and maintain operations through the pandemic and economic downturn. This is achieved by using approaches such as machine financing through to aftermarket and technology solutions, as Joseph O’Grady, Business Director Northern Europe, Case Construction Equipment Europe and David Humphreys, country retail finance sales manager, CNH Industrial Capital explain.
The impact Covid-19 will have on UK businesses
The impact of the pandemic and subsequent lockdowns has sent shockwaves through the UK economy. According to the World Bank, the global economy will fall by 5.2% this year, signifying a forecast of economic downturn. Despite this sombre but not surprising news, the Office for National Statistics (ONS) recently reported “that all sectors of the economy continue to recover albeit more slowly.”
Options to manage risk during times of uncertainty
The best way to prepare for risk is by simulating it and working out what you would do in case it did happen. This is a strategy that has kept many a business afloat during difficult times. Those who do not adopt such approaches could suffer the worst outcomes, with ONS predicting a quarter of UK businesses could be forced to close due to the pandemic. Having access and the opportunity to use aftermarket and finance solutions cleverly takes on a new degree of importance, allowing companies to beat the challenges that come with a recession, such as cashflow disruption, adapting existing inventory and continuing to acquire new plant to meet customer needs.
For businesses that rely on construction equipment, this means one thing: fleet management. Without this, businesses will not be able to fulfil customer contracts, which adds to the worsening negative economic predicament. As a result, ensuring the entire plant fleet is free to deliver solutions to customers becomes business critical. Ensuring regular servicing, parts replacement and even telematics solutions are embedded into the core of your company’s fleet management strategy becomes essential.
During times of economic uncertainty, it is businesses that are brave enough to invest who are the ones that experience the most growth and emerge stronger than rivals. This could be through purchasing new machines resulting in opportunities to increase income. Another way to gain a competitive edge is to enhance your marketing activities, where you are able to ensure that the right audience sees the steps you are taking which could also lead to new customers.
Cashflow is King and staying in control when making any investment is key. There may come a time when decision makers face choosing between paying wages on time or buying a new piece of equipment that will help the business deliver on new contracts. But you don’t need to choose between them – both are possible if businesses take advantage of flexible financing options.
Cash rich and equity poor: making your cashflow work harder
Poor cashflow, literally running out of cash, is the main reason UK companies fail. So, knowing how to manage it is a core business survival skill, especially for small and medium enterprises (SMEs). It is the lifeblood of a business and while profits on paper can look great, cash in the bank is the best indicator of a company’s health.
Producing sufficient revenue to meet business needs is brought into even sharper focus during times of uncertainty. There are many cashflow management strategies that can optimise cashflow, ranging from simply being more efficient and cutting unnecessary costs from the business to getting paid on time through faster invoicing and accounts receivable management software.
Keeping track of outgoings for fleet management is a key priority, as David Humphreys, country retail finance sales manager, CNH Industrial Capital explains: “Fully utilising the government support schemes is crucial at a time like this. These loans can help businesses tide over cashflow problems and survive, with this particularly relevant for small to medium businesses.”
Servicing and telematics are a winning combination when it comes to fleet maintenance
“Without an effective approach to aftermarket care, customers will never get the most out of their construction machinery: it is as simple as that,” notes Joseph O’Grady, business director Northern Europe, Case Construction Equipment Europe. “A purchase is only the first step, and what comes after often determines how much value a machine can return.”
Take servicing, for example, which should be the foundation of your post-acquisition machine care. An inconsistent approach to servicing will inevitably end up causing costly machine breakdowns. Alongside the unforeseen costs, the resulting impact is potentially disappointing customers because you cannot deliver. The result is a double hit of lost revenue combined with increased outgoings. Staying abreast of machine maintenance also improves residual value, helping to conserve cash flow and reduce outlay when looking to purchase a new machine.
“Aftermarket solutions must also ensure companies don’t suffer from ‘bill shock’ when a machine requires maintenance. Agreeing to repairs or servicing only to then discover the price far exceeds what your budget will allow results in a difficult conundrum: spend on the machine and disrupt cashflow or risk a costly breakdown and potentially lose business,” continues O’Grady.
During the last decade the increasing penetration of fleet telematics has enhanced traditional maintenance programmes by using the latest GPS and satellite technology to deliver formerly hidden insights into machine performance.
“Telematics has the potential to revolutionise the construction sector,” O’Grady explains further. “Its benefits are far-reaching, but three key reasons for adopting a telematics solution have become clear in the past few years, and all three focus on extracting maximum value from fleets.
“Firstly, location data has helped to address the several hundred million pounds a year problem of machine theft. With a telematics solution in place, a fleet operator can always see exactly where their machines are from any device. If then, for example, they see a machine being taken away from site on a trailer for an unauthorized trip, they can either act quickly to stop this or continue to track and then recover the machine. When in an economically pressured environment such as a recession, it is, of course, essential to avoid the kind of problems a theft can cause.
“Another common use of telematics data has been to see exactly how long equipment is being used and for what tasks. Access to this has proven to be invaluable, allowing fleet operators to better utilise their machines and deliver maximum value on their investments. What’s more, this stream of data appears in real-time, meaning decisions can be taken on resource allocation almost immediately.
“Real-time performance data brings with it another key benefit: predictive maintenance. This is a crucial tool when looking to be as resource and cash efficient as possible. Not only do utilisation reports provide overviews of machine performance from which potential issues can be flagged, but telematics solutions can be configured to activate alerts when certain thresholds are breached, such as engine temperature. Being able to act on this with such speed greatly reduces the chance of a breakdown, extending the life of a machine and ensuring it delivers maximum value. Case’s SiteWatch takes this a step further, allowing customers to give their local Case dealer access to the data generated to arrange any necessary maintenance even quicker,” he adds.
Think strategically about financing plant investment
Inevitably, the time will come when equipment has to be replaced or upgraded. The temptation is to sweat machine assets for as long as possible. However, replacing equipment is equally beneficial as it keeps fleets operational and running optimally.
David Humphreys, Country Retail Sales Manager, CNH Industrial Capital, explains the importance and benefits of having enough cashflow and how Covid-19 has affected the equipment financing landscape, and the measures CNH Industrial Capital have taken to adjust:
“We have quickly seen that the coronavirus has meant businesses and the financing arms of companies are entering into relationships more like business partners than service providers. In doing so, financing deals can be structured that are supported by much more detailed knowledge of how a company operates. As a result, these will be directly aligned to the businesses plan and goals and work out much better in the long run.”
Business partnership relationships between financing arms and businesses makes sense for many reasons, as Humphreys explains: “Creating new finance products for our customers that reflect the times has been a priority. This helps to overcome fears about opening up a high-risk credit line for a high-risk product, allowing businesses to continue to operate with some degree of normality. As well as this, it is crucial to consider the seasonality of the construction business. The winter months bring harder ground and a pause to some operations. It is prudent, therefore, to reduce payments during this time to just a ‘keep in touch’ level or look to secure a financing deal where these months are payment holidays.
“Only by working with a captive can be these kinds of industry-specific decisions be made, with the pandemic only serving to clarify this. Captives have a deep knowledge of the sectors they provide finance to and as a result can structure the most appropriate deals. Alongside this, many independent financiers might not be as warm to certain industries as they were previously, whereas captives remain committed to their brands regardless. This is not to say that line of credit is closed – working with a captive ensures it remains open while still reaping the benefits of equipment finance,” he says.
Uncertainty brings risk – but calculated risk breeds success
“No sector has been left untouched by the impact of Covid-19 and the subsequent recession measures to combat the virus has induced. As a result, risk and difficult times lie ahead for millions globally, especially those who own or are employed by SMEs. Negotiating during a historic economic downturn will always be daunting – it does not, however, mean that riding out the storm and then experiencing growth are totally impossible.
“Taking the steps outlined by Case’s experts provides a solid foundation for mitigating the risks raised by a once in a generation global economic event. They not only ensure maximum value from existing equipment but offer the chance to upgrade what businesses can offer, all while guaranteeing that cashflow is kept manageable and healthy. Doing so means businesses not only survive but thrive,” concludes O’Grady.