Have you as a business, heeded the lessons of the Global Financial Crisis?
First lesson – The Fact that Cash is King
- With the significant number of USA importers defaulting on their payment terms, Australian importers found that this impacted imports from China, which became more cash on delivery driven than ever before.
- Getting buyers to stick to their set credit terms has proved harder to enforce therefore putting cash flow pressure on the Seller.
Cash cycle between outflow for purchases & inflow for sales widened
- Cash settlement discounts demanded by large retailers grew significantly during the GFC period and reached between 5% and 7%.
Second lesson - The “tightness” of liquidity
No matter; how well a business is run, what the strength of security is or the strength & length of banking relationship, all banking clients have been subjected to high levels of scrutiny especially for those funding lines requiring renewal.
Obtaining additional sources of funding from traditional providers has been near impossible.
Third lesson - The sin of having all your funding eggs in one Bank basket.
And therefore the lesson “That its critical to diversify source of funding at all stages of the economy”
Prior to 2008 most businesses fell into the old banking trap of moving all their facilities under one roof – because of convenience, perceived relationships and so on. This has caused major problems for SME’s as their bank moved from being a willing funder to the reverse.
Businesses must set in concrete the fundamental rule to keep all funding as diversified as possible especially during the good times.