Ready, steady, stop

by admin on January 6, 2009

in General

There is an irony that as the UK heaves itself back to the workplace, the weather forecasters are warning of a long run freeze. A bit like business’s ability to get credit.

Over the holiday period I received an email from my bank. Paraphrasing: ‘Hi: we trust you had a great Christmas break. We’d like to review your facilities and chop them in half. Have a great New Year.’

This is the first time in 15 years of being with the same bank that I’ve ever known them to (pretty much) arbitrarily cut any facilities. For the record: I’ve never defaulted, always done anything the bank required and on time. I’m fortunate I don’t need the bank. At least not for the time being. I’m painfully aware there are plenty of others who DO need their bankers.

2009 is the year when banking changes. As someone who has been directly involved in financing operations since 1979 I cannot recall conditions remotely like those we’re seeing right now. The notion that property provides a safe basis for securing loans isn’t exactly over but has been badly dented. Everything is under scrutiny.

Cash flow quality matters. It always has but now more than at any time I can recall, an ability to proactively manage cash is critically important. In his most recent post, Positive Churn’s Clive Birnie believes we’ll see a massive inventory correction:

As cash stops flowing freely in at the tills having a mountain of cash tied up in a circumnavigational stock blocked pipeline is a life threatening disease.

Global inventory is a complex, messy problem. Contracts for the production of many goods are stretched around the world, sometimes involving complementary trading operations. Think scrap metal leaving the US, new cars coming in.

If the global banking system remains as constipated for any period of time then the bankrupticues will surely follow. BUT…there is plenty that COULD be done to improve conditions in the supply chain. It will require working with suppliers and customers but the key right now is to solve the ongoing communications issues that bedevil many organizations. Professionals can take a pivotal role in working with clients on these issues.

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Richard Young January 6, 2009 at 1:31 pm

It's really odd. I've noticed that I've been offered more credit than ever over the past six months. New loans from my building society (I have a savings account and mortgage with them, so what they think I need the money for, I don't know), new credit cards – and most strange was my bank.

I'd breached my overdraft limit, so phoned to make sure they wouldn't bounce my mortgage DD payment (they have before now when it's coincided with a credit card DD, as it did in December). The woman at at the call centre reassured me, no, it had gone through fine. I told her we'd transfer some money from my wife's account that evening to return beneath the OD limit, and she explained under what circumstances I would pay an unauthorised OD fee if that didn't happen. All good, if a bit "squeaky bum time".

Then, at the end of the call, she told me I'd qualified for a new credit card with the bank and would I like her to activate it and send it out to me! I declined (I've got three already), but it seemed an odd conversation to be having during a credit crunch. I can only assume that the bank is looking to generate fees from creditworthy end users to offset the decline in profits from lending to businesses and more exotic trading activities.

On another note: is anyone else fed up with the banks taking the blame for not lending to small businesses? People say it's a problem with available credit and undue caution post-crunch. But surely banks would naturally be hesitant to lend to small businesses at the start of a recession, even if there hadn't been a problem in wholesale lending? It's not often I agree with David Cameron, but risky lending is precisely what got us here to begin with – so it shouldn't happen now. As Dennis says, surely addressing supply chain and other processes is the best way to manage cash in a recession, not borrowing – which for the bank is a no-win situation.

(Apologies to those of you running businesses with sound order books and tight processes who ought to be able to borrow sensibly but can't thanks to the recent idiocy of the Masters of the Universe…)

gucciwomenshoes February 12, 2010 at 6:39 pm

it seemed an odd conversation to be having during a credit crunch. I can only assume that the bank is looking to generate fees from creditworthy end users to offset the decline in profits from lending to businesses and more exotic trading activities.

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