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Cash Flow: A Crucial Issue for Independent Retailers

G.A. Wright Retail Trends 2007 Article from Performance Source Inc.

By Steve Newman, Guest Columnist  

Smart retailers know they must be quicker and more responsive than ever in order to win and retain customers.  This is especially true for independent retailers who can�t match the price advantage of their national-chain competitors.

Focused on pleasing the customer, making the sale, and posting a profit, retailers--especially smaller ones--can easily lose sight of the importance of cash flow.  Sales must generate enough cash to cover not only the retailer�s fixed costs (such as salaries and payments on loans and leases), but also promotions and other variable expenses.  But, �so long as more money seems to be coming into the business than going out, many small business owners do not give cash management a second thought. And that leaves them vulnerable to all kinds of dangers,� writes Isabel M. Isidro, Managing Editor of

One of these dangers is that unpaid debts and bills can simply overwhelm the retailer.  Even closely held retailers who are profitable are likely feeling a heavier debt burden lately.  That�s because many private-business owners rely on credit cards or home equity loans�increasingly ones with variable rates�to launch or expand their operations.  Besides being more costly to use as interest rates have risen lately, many credit cards� minimum payments have jumped to 3 or 4% (from the typical 1.5%) of the outstanding balance as interest rates have risen. 

Consider Your Options

As an independent retailer, what can you do if your company�s debt load has become a problem?  

Your first inclination probably will be to do nothing and try to �ride out� the rough patch.  Unfortunately this approach often makes the situation worse.  Consolidating your debts with a new loan is another option, but most likely you will have to put up collateral such as your home or major assets of your business.  Plus, the long-term cost of the consolidation is often greater than what you currently owe on the debts.   

If the financial situation is beyond saving then bankruptcy is third way to go, but not as attractive as it used to be: The 2005 Consumer Bankruptcy Reform Act has unintentionally made it harder for small businesses to wipe away debt.  Even when a credit card is opened in the name of a business, the card�s terms require the owner to be a personal guarantor.  Therefore you are liable even if the business goes bankrupt.  

What About Debt Settlement?

As a result, more business owners are discovering debt settlement.  If you hire an experienced, professional negotiator who deals with each creditor individually, some of your debts could shrink by as much as 70%.  Always look for an experienced pro who will also handle all calls and letters from creditors�allowing you to focus on rebuilding sales and curbing expenses.  

A key question that any retailer should ask a debt-settlement firm is how it earns and collects its fees.  Ideally, the fees should be based solely on performance (the dollar amount of debt savings achieved for the client).  This makes debt settlement a virtually �risk-free� solution for the client: no fee to pay until each negotiation is completed to the satisfaction of both you and your creditor(s).  

That�s not to say that debt settlement is perfect, or appropriate for all retailers� financial situations.  It�s primarily for companies already behind on their payments and looking to make a fresh start.  Because they are �in arrears� on their debts, these firms� Dun & Bradstreet ratings usually have already dropped.  Debt settlement activity may initially lower these ratings further, but in most cases it�s also the first step in rebuilding the client�s rating�precisely because payments are now being made where they weren�t before.  

The bottom line: If debt is choking off your company�s cash flow, you�re not alone.  Many companies are struggling against stiff competition and the slowing economy.  But don�t assume your firm�s debt problem will take care of itself.  While debt consolidation or bankruptcy might seem like the most obvious answers, debt settlement could get your business back on track financially with far less cost and stress to you. 

Steve Newman is Principal of Performance Source Inc (PSI).  Since 1963, PSI has helped thousands of clients save millions of dollars and satisfy their creditors without borrowing money.  Under the company�s risk-free process, clients decide which payables they want PSI to negotiate, they approve (or decline) all proposed settlements in advance, and owe PSI nothing if a settlement is not reached or not accepted.  And because PSI also handles all contact with clients� creditors, clients are able to focus on growing their businesses.  Steve can be reached at 800/883-5080, or  The company�s web site is