Over their life many businesses will experience periods of cash flow difficulty. Most will survive them, but how they are handled will often determine the strength of the ongoing relationship a business has with its critical providers of goods and services.

Ignoring outstanding debt, avoiding contact with creditors, making false promise of payment or making random payments is not the way to encourage co-operation from the very suppliers that are essential to the business survival. It should always be remembered that as important as they may be to your business, your continued success and survival may be just as important to the suppliers business.

From the debtor’s point of view the issues are:

  • Is the current cash flow problem short term
  • Is it simply a timing issue
  • Can you trade out of it
  • Rather than sales or trading is the current situation caused by your own creditors
  • How long before normal cash flow is expected to resume
  • Does your business remain viable

Now is the time to review budgets and projections realistically against current market conditions and current business performance. Now is the time to make decisions about the future. If you have done all this and are certain that your business can survive (return to the position where it can pay its debts as and when they fall due) then now is the time to discuss your current situation with your outstanding creditors.

Most creditors when provided with an honest appraisal of the facts affecting a customers’ ability to pay will understand. It is not in their interests to close down a potential long term source of funds over a short term problem.

Negotiating a Debt Repayment Plan with suppliers will enable a company to continue trading while continuing to access the stock that they need to do so. Debt Repayment Plans, formal or informal enforce an operational discipline on a business and focus the management efforts on achieving the plan. To be successful a Debt Repayment Plan must be:

  • Realistic
  • Have an end date
  • Make reasonable regular reductions of the total debt
  • Must be strictly adhered to

All parties benefit from a properly managed Debt Repayment Plan that runs to an agreed outcome in an orderly manner. Sometimes flexibility is required but proactive communication on the part of the debtor in a timely manner can do much to ensure the creditor remains committed to the process.

Supplier finance has long been a valuable source of business finance and should never be taken for granted.