Payment holidays are storing up trouble for later

Payment holidays and time to pay, while easing the current cashflow burden, may simply delay the collapse of thousands of businesses once the money has to be repaid, a leading business organisation has warned.

Without professional credit management support, and a key focus on collecting money that’s already owed, businesses will still struggle to survive despite the best Government efforts says Sue Chapple, Interim Chief Executive of the Chartered Institute of Credit Management (CICM).

“Payment holidays are a stay of execution, and I fear that many companies are forgetting that when the crisis is over, creditors will need to be paid what they are owed, whether that’s to the Crown (i.e HMRC), landlords, or other businesses with whom they transact.

“Also, for every company that’s not being paid, or that is effectively extending a longer line of credit to their suppliers, that loss of revenue has to be managed in their own cashflow. And if that means further borrowing, that could have serious consequences on that company’s ability to extend credit in the future. And without credit, there is no trade.”

Sue’s comments come on the back of recent research of CICM members that found that almost two thirds (64%) of credit managers had been asked for Payment holidays by their supplier partners: “There will be a day of reckoning when all the money owed will need to be paid back,” she says, “and businesses need to factor this into their cashflow forecasts.”

The research also showed that as many as a third (34%) of CICM members are re-negotiating payment terms and conditions. In a handful of anecdotal cases, credit managers said they are increasingly hearing of supplier contracts being cancelled with immediate effect and without reference to any existing notice periods.

Sue says that failing to honour existing contracts is also a serious concern: “Whereas I understand that every business is in short-term survival mode, treating suppliers in this way is unforgiveable,” she adds. “The Coronavirus is of course a challenge, but when it is all over, those precious suppliers whom the bigger businesses previously relied upon may be gone.”