Why is an agreement not an agreement?

| April 4, 2011

Cash flow for all businesses is king. Without the ability to fund yourself even very successful businesses can be forced to the wall.

In the old days a 2:1 debtors to creditors ration meant that you were very healthy.

Why? Because your debtors generally paid on time and it was possible to budget your cashflow.

Today, even your best accounts have trouble paying in under 45 days, some go 60 to 90 days. We even get queries on the account for small amounts to justify not paying the bulk of the account and then taking 45 days from final reconciliation of the account.

When contacted personally and arrangements for payments are made, these arrangements are not met. Threatening to stop supply and winding them up gains the response that “ then nobody will get anything”.  I am also being told that they can’t pay us till they are paid.  They tell me that their debtor list will more than cover their creditors, if they can only get what is owed.  What’s  going on?

Who is holding all the money?  How do we get it flowing.?

Making a profit on paper each month is not enough to fund growth and sustainability.

The demand for staff and the wages paid up north is putting pressure on wages paid in Perth.

The Governments national wages and fair work has no bearing on what is happening on the ground,

Selling prices are, in many cases, well below what we were getting several years ago, but the wages are up 50% or more.  Cost of overdraft money is such that, by not paying their accounts, customers are getting interest free loans. We are not banks and cannot fund our clients as well as ourselves.

Banks with their negative ultra cautious approach to corporate lending will become self fulfilling prophets. Lack of cash in the system will invariably force some under. Then the banks will stick out the chests and claim “ see we were right, things were  bad and look at all those companies falling over. We were right not to expose the bank  to that risk.”

Talking with CEOs and general managers of well known companies they all, without exception, sing the same song. The only ones not singing from this song book are those who have contracts in the mining or oil & gas industries. Although some of these are carrying huge debtors list.

The big question is how do we get  bank officers, government and council employees to apply commonsense in their dealing with established industry and not make decisions on which box gets ticked?

As well as a lack of cash we seem to have a lack of commonsense and common decency.

Let’s not get despondent. Let’s just undertake to pay our bills on time and honour our agreements and hope that the cash starts to circulate.

Ray Levin is general manager of Italia Stone Group.