These are extraordinary times through which we are passing and, when Liza Minnelli told us that money makes the world go round, never has this been truer.
As businesses face everything from a slow-down to a shut-down, and everything in between, the natural and wise reaction for businesses is to review and trim, even slash costs. In times of plenty we often put up with costs which, when put under the microscope, are found not to be adding sufficient value. It is right to be more prudent in any case.
The discussion around personnel costs is an important one and clearly much analysis is currently focusing on this area and rightly so. The COVID-19 pandemic is a temporary phase which we will all come out of at some point and ideally businesses need to be ready to take advantage of the upswing with staff in place and even better trained. That, however, is a topic for another article.
What we should not do now is stop delaying payments to our creditors. That would not be right or ethical. We have all made a pact with our suppliers of goods and services with terms of payment that were agreed at the time. Clearly things have changed but we need to honour those in the same way that we would expect our clients to honour their payment commitments with us. If each business delays paying its suppliers, the business community will grind to a halt.
Paying of suppliers is not about reducing costs, the costs have already been incurred, it is about cash flow. Of course cashflow is crucial for a business but this IS something that the Government measures have addressed. The package which authorises impacted companies to delay their payments of tax and VAT provides that extra liquidity. Let us not forget that the tax being referred to is the tax on profits generated in previous financial periods and that the VAT to be paid has already been charged to your own clients during the 3 month period that would have ended 6 weeks previously – long before the Corona crisis.
In addition, the Bank Guarantee Scheme that forms part of the benefits announced by Government as well as the more liberal attitude of the banking sector towards moratoria, extending working capital arrangements etc., also go some way to facilitating this.
Many have said, of course, that any borrowing undertaken now still needs to be repaid at a later stage. This is certainly correct but, in a time when demand has softened, we need to look at all the options and this may be one.
Now, when negotiating new purchases from suppliers moving forward, if you would like to request further credit, that is a different thing but even then, honour what you agree to. All too often companies negotiate particular pricing and terms and then the buyer thinks they have the ability not to adhere to the agreed terms. We all have to honour our commitments.
In Maltese we have a saying “ir-rota tibqa ‘ddur” which means that the wheel keeps turning. We are all on the merry-go-round and if one of us stops it turning, it stops for all.
