Cash Flow problems

A recent article from the Forum of Private Business (FPB), reported in our business news made reference to the fact that the downturn is exacerbating late payment problems for business.

I write this latest posting on September 29, the day when commercial property rents are due in advance for the quarter to December. Reports and rumours spreading around the property and business media suggests that many businesses, from global corner shop to some mighty retail giants, are facing such cash flow difficulties that they may fail to meet their rent obligation.

No doubt that by the time this posting sees the light of day, some of these stories will already have emerged and commercial landlords will be considering their options as to what best to do with defaulting tenants.

The subject of commercial property rents has come into the spotlight recently as a result of a number of well known names suggesting that the quarterly payment method, de rigueur for centuries, should be replaced by a monthly system to smooth cash flow. Cynics perhaps have suggested that this is just a ruse to deal with the current credit squeeze as it hits the retail sector. The bigger picture of course is that we are all in danger of feeling the effect of late payment issues and for some, the results could be catastrophic.

For smaller businesses, with far more limited resources, late payment has always been a problem as they battle with their larger counterparts. The sad thing has always been that larger businesses, and in many cases, the largest of these, have always been the worst payers. When you are paying tens of millions of pounds a month to your creditors, each days delay is a reduction in finance costs that go straight to the bottom line. Of course, for some of these companies the boot is on the other foot. Some very large retail companies, who have often been very tardy in paying their suppliers, are now going to have to negotiate directly with commercial property landlords to buy time. I have little sympathy with either side as my general feeling is that the maxim “what goes around comes around” has never been truer. Those retail giants who are struggling with their rents may now understand how it feels to have cash flow problems while the commercial property sector, and for that matter the property sector generally, has had a very good ride over the last few years.

As an onlooker, I will watch with interest as the negotiations unfold, particularly as one way or another, we probably will all be affected by ensuing developments.

For the smaller business, watching from the stands, they still have got to deal with their own payment problems. With banks and other credit suppliers tightening the availability of finance, it is going to be a challenge for all of us to keep cash flowing through the system without it affecting our ability to trade.

More on this later.