Okay, it’s a shameless plug for the book (Get P.A.I.D. a Guide to Getting Paid Faster) and the system, but it is also a reminder of how important it is for businesses to pay attention to their credit extension, monitoring and collections when things are tight.  One might think it is benefical to extend more credit to buy sales in this atmosphere.  In some businesses, in some market segrments, that might work.  But it is very risky and must be done cautiously and thoughtfully.

In general, businesses are having a tougher time paying their bills.  At a minimum, they are saying they are having a harder time and using the ecomonic issues as an excuse (or reason) to hold onto their cash.

Today, a customer of a client told me he could send the $9,000 payment today, but he wanted to hold onto it for a few days just in case.  (I read that as “just in case something more pressing requires the money”).  He said he’d pay a premium for the few days.  I said he was paying a premium since the default interest rate of 18% had already kicked in.  He whined, then said he’d send the $9,000 now!

‘nuf said?

I suppose the lowering of LIBOR is an indication to some that credit is easing, at least on Fleet Street!  Most of the “main street” businesses probably don’t feel that yet.  Not sure if that is a measure of credit that will filter downanytime soon.  LIBOR is the London Inter Bank Offered Rate, a rate measuring the interest charged between banks.  Until recently, many US banks used that as an alternative for Prime.  Recently, LIBOR went through the roof, an indication that credit was tight.

When a company files a Chapter 11 case (or even before-when there is time), a big issue is how to fund operations post-filing.  The Debtor-in-Possession (DIP) needs to make arrangements with its current lender(s) or a new lender to take on the additional risk (and rewards) of a DIP loan.

With the credit crisis, DIP lending is getting harder to find.  A Wall Street Journal article today says:

“Debtor-in-possession, or DIP, financing is essential for the lawyers, layoffs and other restructuring necessary for a company’s rebirth. Exit financing is used when a company “exits” reorganization. Banks have been eager to take part in this market because the loans are the first to be paid back and command high interest rates.

“Without the lending lines, companies that would normally survive bankruptcy will have to quickly sell assets. Potential buyers may not be able to borrow either, meaning companies could be forced to liquidate immediately instead of working out their problems. That could cost tens of thousands of jobs across the economy.”

Chapter 11 is a necessary evil in our economy.  Just like with bankruptcy in general, if companies can’t restructure and manage their debt, they won’t take the same risk or, worse, they won’t be able to get out of an unforseen problem to, once again, be a successful, profitable employee and contributor.

Let’s hope things settle down soon so, at least, the companies needing to reorganize can do so.

…That’s hard to do when it seems like we have no control over the loss of a large percentage of our personal net worth.  Real estate values down, stock market values down.  Twenty-five percent (or more) of some peoples’ assets gone in a couple of months.

So, hard do you stay calm?  Well, as an individual, you take the long view and recognize that the markets always come back (unless you think this is really the end of civilization as we know it!).  In that case, you plan for when they start coming back (perhaps in a year or two).  If you are unlucky enough to need your invested money in the next couple of years, you have a problem.  I feel for people expecting to retire in a couple of years.  If they still had all their money in the market, perhaps they were not getting (or taking) good advice.

As a business owner or manager, you have to consider your market and customers and how the recession will affect them.  You should adjust accordingly.  If you have a business that will grow during this time, plan to take advantage of the market.  If your industry will suffer, then plan to take advantage of the opportunities to attract good employees from others in the industry, give good value nd god service and attract markt share.  If possible, use your cash wisely to be prepared for the upturn.  My father taught me a system for use that the craps table that had me conserve my cash so I could be around when the “good roll” came.  If you are too risky and plunge into things, then you may not be at the table when the good roll comes.

I follow that advice regularly.

Bob