This week was a week that saw that to stay in business you need to get help from your suppliers. This includes not only trade suppliers, but your landlord and the tax man.
To stay trading in the current economic you need cash. Getting cash from the banks is difficult as they have reduced their lines of credit. Getting paid by customers needs to be managed tightly, no cash, no goods. Getting credit from your suppliers is vital to help fill the gap to the time when you get paid. If you can get paid in 30 days and get credit of 60 days from your suppliers then in theory you should have the money to pay your supplier before he comes due for payment.
What has happened in the past is that businesses had very poor credit control. Everyone sold, everyone had enough cash to keep going and everything looked great. Now we have the situation where credit limits are exceeded, customers don’t have the money to pay their suppliers. Suppliers have so many customers who have great difficulty paying them, that if they were to chase the customer to hard for payment their customer may go out of business and then they would get nothing. The suppliers are now trying to gradually work down the debt they are owed and with this in mind, customers are negotiating repayment schedules. This helps them with their cash flow and helps the supplier get paid if only a lot slower, but getting something is better than nothing.
Property is in the doldrums. Landlords need tenants. Rents have to come down and so tenants are negotiating down their rent and helping their cash flow. Landlords have a tightrope to walk. They need cash to pay back the bank loans but if they reduce the rent too far they wont have sufficient funds to pay their loan repayments. But if they don’t lower the rent they charge they may force their tenant out of business or force them to move to a cheaper premises and so have no income to pay the loans on their buildings back to the bank.
But for a business to move premises can be a big cost, especially if the tenant is well established and their customers know where they are. if they move those customers may nor move with them. If the tenant has a lot of heavy industrial equipment, it wont be easy to ship that equipment somewhere else. In these cases negotiating a new rental agreement may not be as easy for the tenant, but the landlord needs to be careful he does not end up with no tenant but a lot of equipment no one wants or needs.
The tenant has nothing to lose by trying to negotiate down his rent and the landlord has nothing to lose by make a counter offer. But everyone needs to be reasonable and not be greedy. It is better for everyone in the long run if everyone stays in business as then everyone can make money.