It is unclear from the number of sources commenting on the economy what 2009 holds for business. The Government’s official position is that growth will decline in 2009 by 1%. However, some commentators are predicting a decline of more than 3% and a return to growth only well into 2010. In these uncertain times how do businesses with a profitable core operation ensure survival?
Cost cutting exercises are being carried out by many to ensure survival. Staff costs are being reduced but this costs money as redundancy payments must funded. Cheaper supply options are considered. From where will this money come?
During the boom, the majority of businesses needed to concentrate on customer and contract acquisition and then delivery to those customers. With banks lending in support of growth book debt recovery was down the list of priorities. Now that there is a stiffening of the credit conditions funding for restructuring is difficult, if not impossible, to obtain and then at penalty rates. The requirement on the banks that have taken the Tax-payer funded bailout is that they must significantly increase the amount of capital/cash on their balance sheets. As a result the appetite for the banks to lend to businesses is severely curtailed.
Decision makers in business are now considering how to restructure the operations to maintain a strong cash-flow position. One certainty is that turnover will continue to reduce for all but a few market sectors. It is certain that in the short- to medium-term trading your way out of the situation, on the same basis is not an option. In the forefront of the decision makers mind is the hope that some competitors will fail. Even though the market will contract further, if a significant number of competitors fail then the share of the market available to the business will be sufficient to guarantee its existence through to the end of the downturn.
A considerable amount of the ‘survival’ money is tied up in debt of which a significant amount may be long-term. As Debt Recovery lawyers we have noticed that the age of debt upon which we are asked to advise is increasing. A small number of businesses have realised that the impact on cash-flow of a robust and rigorous debt recovery process is now a business imperative. By stealing a march on your ‘cash competitors’ you will be taking steps to ensure the business survives. More importantly in your banking relationships greater emphasis is now being placed on your ability to review and analyse the profile of your debtor book. Banks are taking a much greater interest this information for the purposes of assessing the viability of your business.
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Director and Head of Arrears Management
Tuesday, 13 January 2009