Cash flow and an interesting conversation with a lawyer Monday, October 13, 2008

I had a conversation last night with a lawyer who was respresenting a customer who’s supplier had just pulled their trade credit line on them.
The trade credit line was for $600,000, and this turning off of taps has effectively put his client into liquidation and now they have to go into voluntary administration. This is yet another example of what is happening in the market, and an example of what more is to come (hopefully not). It’s too bad the supplier (who turned off the customer’s credit) was not using our cash flow facility as we have trade credit insurance which would mean he could have kept on funding the cutomer. But enough of my self promotion. This is a real concern for a lot of business out there at the moment.

In this market it is a good time for people to do a stress test on their business. Run ‘what if’ scenarios. For example in this case, what if my supplier turns off our trade credit? Do we have a solution or do we just raise the white flag and go into voluntary administration. Another question to aks is, what happens if one or more of my customers go under?

What are your thoughts out there?