Managing cash flow is one of the challenges faced by businesses every day. A business can show very healthy sales and profit margins. However, if these sales do not translate in actual cash to be able to pay suppliers and employees, a company is bound to go bust.
Indeed granting credit is a dilemma for most companies. Some companies do feel that it is impossible for them to sell unless they grant generous payments terms which can last even more than six months. As banks may be reluctant to grant credit to certain individuals, these turn onto their suppliers to finance their business, however, endangering the livelihood of these ‘financiers’ themselves. In Malta, the Price Club saga is a bad memory for quite a number of companies in the food industry. Everyone went shopping with cash, however, suppliers to the supermarket were not receiving any of the cash. I personally believe that to prevent being exposed to risk of defaulting creditors, one must simply ask, if the banks with their loans and framework to assess creditworthiness have not provided credit, why should my company provide the credit? If the bank has decided not to lend the money, it must necessarily be a bad investment to trust your money with these people.
In Malta, grand capital projects have frequently been accompanied with bartering. Large contractors pay small suppliers, most of them microenterprises, through a share of the property being built. Nothing seems wrong with this system as some microenterprises visualise this barter as a fair deal which will give a substantial reward once the property is sold. However, what happens in a slow property market, as the one the economy has been experiencing for the past few years? Obviously these enterprises find it difficult to liquidate their payments and thus have difficulty to pay their commitments. The tax incentive for first time buyers announced during the last budget speech will get the property market moving and is indeed a step in the right direction for more liquidity in the economy.
However, bartering is not the only culprit to cash flow problems. Indeed late payments from Government entities is also a major contributor. The micro enterprise in which I work sells various products to various government entities and departments. I must admit that some entities pay within decent time frames. However, there are some parts of government which I have to phone every single day to remind them about payments which materialise only after 3 months of daily phone calls.
It is indeed true that one can take legal action and interest is legally payable for overdue payments. However, relationship marketing teaches to keep the best possible long term relationship with customers and legal action is only resorted to when one realises that the business relationship is terminated. So the enterprise is
left in a situation of utter impotence. Work is being carried out, the service is excellent, the customer is happy but payments take months to be sorted. Most of us have basic respect towards companies we deal with in our normal lives. Most of us go to the supermarket, to buy clothes, to buy shoes with money in our pockets. This normal respect seems to be lost when it comes to government entities who are manned by persons who believe its completely normal and unimportant that companies have to wait for months to be paid. Are these same civil servants ready to wait months without getting their wages? Not at all. What do I suggest? Indeed new rules self regulating government entities are required so that legal entities making orders actually have cash and the capacity to process payments beforemaking orders. This measure indeed costs nothing except better planning of cash flow and human resources from government entities. However, this would change immensely the livelihood of microenterprises.
My message is clear: To create sustainable jobs sometimes simple and non costly measures are required. In this case, it’s just basic respect towards companies and people who man them. Dear civil servants please realise that just as you look forward to your pay by the end of the month, so do others!
Fleur Vella is a Labour Party candidate for the European Parliament Elections. She read an Honours Degree in Economics and a Masters in Business Administration from the University of Malta. She worked for five years with the civil service on Malta’s negotiations with the EU. She has now worked for seven years with a local micro enterprise. She can be contacted on[email protected].