Warning Signs

For some of us in business, coming out of the Christmas season and shortly thereafter can be a tough time, with only one half of the month productive and even then, business is slowing for the first half of the month. The whole country goes on vacation for first half of January –and then on top of that there are holiday pays which further contribute to the problem. The upshot of all of this is;

  • No debtors will be paying their December invoices because they too are faced with the same problem, namely, they also have only one half of a productive month
  • The same occurs in January for all the same reasons
  • Then in February all of these businesses are short of funds as well.

Cash is drying up.

Debtors are still slow to pay due to theses “shut downs” resulting in reduced production/sales leading to poor cashflows and the inescapable reality of a shortage of working capital.

Many businesses consequently struggle in this first quarter, some more than others and they can be caught in a downward spiral, from which some never recover.

It is therefore very important to make adequate provision for that season well in advance;

It is therefore imperative to start planning well ahead and this may include;

  • chasing debtors

or maybe

  • seeking debtor finance
  • extending overdraft arrangements
  • selling off equipment/assets, surplus to requirements to “cash up”
  1. Generally speaking, if these matters are not addressed early enough; only a drastic reduction in costs can “quickly” return a business to profitability. The cost reductions must be rapid and effective without impacting upon the ability of the business to meet demand. Such cost reductions could involve laying off staff, or factoring accounts receivable.
  2. It is therefore advisable to act early in terms of implementing these strategies and if they aren’t working there are other options.

In any event, believe it or not if caught short, the law provides a range of solution to these problems with the appointment of the trustee to put together formal arrangements with all creditors. The implementation of these arrangements has the impact (first and foremost) of imposing a stay on all creditors of the business; meaning that the debtors, as collected (when collected) may serve to help finance the business going forward.

Needless to say you need to engage legal assistance to properly put together these arrangements.