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Cash is King

Posted on Jan 09, 2012 by Sandy Finlayson  | 0 Comments

I was recently involved in a fascinating discussion about what we can all do to improve the business environment in the year ahead.

Rather to my surprise one of the main themes to have emerged from this discussion was the importance of persuading everyone, whether they be public sector, big corporates or SMEs, to pay their bills on time.  We live in a world where everyone is trying to stretch credit to the limit, price chip and beat down suppliers to get a better deal.

At the level of each individual business that might seem to make good business sense in specific instances.  However, if everybody takes it to extremes, the net result is that everybody ultimately loses as operating margins are squeezed, the circulation of cash in the economy freezes up, businesses are unable to improve their service or invest in their future.  More pressingly, many sound businesses fail because they run out of cash.  Indeed, one of the reasons for the banking collapse was that the Banks quite simply ran out of money.

As long as the Euro crisis persists, and there is no sign of it disappearing any time soon, the banking sector will remain at risk across Europe and business cannot expect any increased support from the banking sector.

On the other hand, businesses should not rely on their suppliers as informal lenders of last resort.  We would all be better off if we focused on providing excellent products and services and offering good value for money, dealing with customers who are willing to pay a fair price for our products and services and to pay within normal credit terms.  If we all aspire to do this across the whole spectrum of business it would greatly increase the circulation of cash round the economy, everyone would benefit and we could all look forward to a brighter business environment in 2012.

Happy New Year!

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