In these past couple of weeks I don’t think I have spoken to as many industry folks as I ever have done. I appreciate the conversation. Its a nice change of pace to the otherwise monotonous lockdown life.
What has become increasingly clear in those conversations, even more so in the past few days, is that cash flow in the upper parts of the fenestration supply chain has begun to grind quickly to a halt. Companies are not being paid, and its about to have some severe consequences very soon.
Cash, or no cash?
I have been privy to a number of communications from various friends in various parts of the supply chain which demonstrate quite an immediate inability to pay. Now, there is a question as to whether there are companies who have the cash but are sitting on it, or whether they genuinely don’t have the cash and simply cannot pay at all.
The ramifications of this are already taking effect. The flow of cash has quickly dried up. We’re into a new quarter, another month has just passed and there will be masses of invoices sat on desks, unpaid, leaving companies nearer the top of the supply chain with some immediate and quite serious problems.
There’s two camps. Companies that have the cash but won’t pay it, and those who have nothing to pay with. If you’re in the latter, I feel your pain. If however you are in the former and have cash to spend, pay your bloody bills! Our industry requires any cash that is currently available to keep moving around the system so that companies can remain operational. If not, within a matter of a few weeks we could see a tsunami of administrations and insolvencies. And that doesn’t just mean for UK fenestration, that means for most sectors around the UK.
Our industry has a decision to make. We’re very vocal on certain subjects. Last week it was the moral decision on whether to stay open or to close. In the past it has been about whether to deal with companies that have phoenixed or gone under and rebooted oweing money. This time is whether to pay suppliers and other companies that form the top of our supply chain. If you have the ability to pay, something, not even all of it, then pay it. As and when things return to normal, you are going to want those suppliers to keep supplying you with product. You’re going to want that nice friendly relationship. As of now, people will be making mental notes as to who was helpful and who wasn’t during this time of national crisis. People will remember.
CBILS no good
A second problem compounding the issue is the CIBLS. The loan scheme set up by Government, delivered through commercial banks. When these are eventually being offered to companies, many are being caveated with Directors having to sign personal guarantees on their assets should they not be able to pay the loans back. Consider the fact that the Government is supposed to be guaranteeing 80% of the loan, so the banks would only be exposed to 20% of the loan should it go bad. Why insist on PGs on such a low percentage? This is the reason why so many companies will choose NOT to go for the loans. In this climate, where even tomorrow is uncertain, would agree to such a risk like that? Very few. And that’s why businesses are in such a bad position. These loans, unless Government cracks down on banks and their T’s and C’s, are useless.
Consider this for a moment as well. The recovery from this is going to take a very, very long time. You can read some predictions here about how long it might take. I continue to see predictions of a V-shape recovery, which are baffling me considering the most recent forecasts out from the institutions that matter are all now saying prepare for a long haul. Yes there will be some sort of bounce, from the portion of the population that have money to spare, are safe in their job, didn’t suffer personal loss from the disease and are relatively debt free. That’s not a huge swathe of the population to go at.
So are companies really going to look at the long term recovery and be sure enough that they would be able to pay any loan given back? I suspect not. Would you take out a big mortgage on a new house if you weren’t sure your job was safe? No, you wouldn’t.
In the next few weeks, and it really is in that short a timescale, businesses up and down our industry are going to have to make some very hard decisions. Even with the Government support for wages for furloughed staff, there isn’t enough realistic support right now for businesses as far as I can see. Unless Government decide on a radical, immediate shake-up of the CIBLS.
The bottom line is this, if you can pay, pay. You’ve had the product. You’ve turned it into a sale. Now complete the agreement.
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