Season of Goodwill?

December marks a “pinch point” for many businesses, particularly for the high street retailers.

The quarter day – when quarterly rents to landlords fall due – is on December 25. About then most businesses will be facing their next pay run of salaries for employees and possibly of payments to additional temporary staff who have been taken on to cover the festive season. Then there is a VAT return with VAT to pay on the Christmas trading.

If all has gone well the seasonal stock will have been run down and there will be a lot of cash in the bank from the Christmas trading.

The question is what will the banks do at this point? Are they lining up to pull the plug on businesses at the point in the year when their clients have most cash? Or the point when their clients have significantly reduced the overdraft? Arguably Christmas is the best time for a secured creditor, such as the bank, to call in its loans, or reduce the overdraft. The banks don’t even need to pull the plug, they can just take the cash to offset a loan or simply reduce the overdraft facility.

With banks seeking to repair their balance sheets and the uncertainty ahead, are we likely to see a sudden upsurge in insolvencies immediately after the Christmas period?

It is estimated that 160,000 businesses are classified as ‘zombie companies’, defined as those who are surviving by only servicing interest with little prospect of ever repaying the loans. Since the start of the recession it may not have been in the interests of the banks as secured lenders to pull the plug, however Christmas can be the best time for them to consider such an option.

Companies who are just servicing interest ought to be concerned. They ought to be seeking advice before the bank swoops.

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