The pharmacy sector will experience a cash crunch this winter.
Moving on from nearly two years of the most challenging of times for community pharmacies, the moment has come to re-focus on growth and the development of the business. But whilst investment in the future is on the minds of many ambitious pharmacy leaders, this will need to be balanced against the challenges that continue to present in the sector, and the management of working capital that is required. From the cessation of PEPS to BREXIT, from labour shortages to continued COVID-19 containment measures, the requirement for cash has never been more important.
As pharmacy owners look to the future of their businesses, they need to be mindful of factors that could potentially impact their cash flow over the coming months.
The end of the PEPS scheme and the clawback of COVID-19 advance payments
The Department of Health and Social Care ended the Pharmacy Early Payment Scheme (PEPS) on 1st October 2021. And for participating businesses, this could have a severe impact on their cash flow:
- A final ‘transition' payment of 92% of their average monthly payment was made on 1st November 2021.
- And only 92% of the regular monthly payment will be paid henceforth.
- The remaining 8% needs to be met through available cash flow.
- This will be required for the subsequent 11 months, until the transition payment is recovered.
- Participating contractors will receive no advance payment on the 1st December
There will be no further payments for PEPS contractors until they are eligible under the new earlier advance payment process, with receipt of November's advance on 10th December 2021.
Where wholesalers are due payment on 2nd December 2021, the business will need to ensure available cash flow to meet these critical payments.
Concurrent to this, the COVID-19 advance payments made by the UK GOVT are due to be repaid between the 1st October 2021 and 1st March 2022. Pharmacy businesses are required to make repayments of up to 8% of net monthly revenue, as part of the clawback process.
In some instances, where both the end of PEPS, and the COVID-19 advance payment clawback process are applicable, businesses will be required to make repayments of 16% of net monthly revenue for the next 6 months, and a further 8% a month for 5 months thereafter.
Other Market Forces Affecting UK Pharmacies
But there are other market forces at work too. Pharmacies across the UK are being impacted by labour shortages because of a reduced workforce and competition from other healthcare environments.
The Community Pharmacy Contractual Framework arrangements remain flat, whilst overheads increase for many businesses.
These combined with the changes above, leave UK pharmacies facing the prospect of significant negative cashflow during the busiest season of the year, and at a time when many want to look to a positive future of growth, driven by improving patient services, investing in new revenue streams or acquiring more premises.
How then to implement strategies for growth in this context? Help is at hand as RxBridge have supported 100's of UK pharmacy businesses and remain committed to enabling growth in the sector, even as it weathers the cash flow pressures of the coming months.
To ensure that your business has the working capital to thrive in 2021 and beyond, contact RxBridge on 020 7313 8088 to arrange a working capital facility that ensures the financial security of your business.
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