High Streets Initiative 9 July 2018

5 ways aged debt has affected small retailers and how to stop it happening to you

Poundworld founder Chris Edwards is struggling to save the chain
With more large retailers, including New Look and Poundworld facing the pinch of crippling debts, it seems like it’s only to be a matter of time before another well-known brand announces store closures.

Well, it turns out some of the problem could be down to retailers spending most of their time chasing unpaid bills from debtors.

In a recent survey by?Liberis, 61% of retailers labelled aged debt as one direct cause of halted growth. Unable to claim these unpaid invoices, how can retailers reach their full potential?

Here are five real-life examples from the Liberis survey which show how aged debt has negatively affected retailers, with actionable steps to ensure this doesnt happen to you too.

  1. we are unable to hold stock?

Businesses need in-house stock to survive, however ordering stock becomes an issue when the customer fails to pay. Not only has this left a business without a profit, but they are now left with stock they’re unable to store or shift.

For retailers, stock is one of the most significant expenses. But finding a balance between the costs and benefits of holding stock is crucial.

Always keep in mind that:

  • Too much stock equals extra expense as it can lead to a shortfall in your cash flow and incur excess storage costs
  • Too little stock equals lost income from fewer sales and also undermines customer confidence from false advertising
  • The wrong stock means lost income from lost sales, write-downs and poor customer service
Finding the best supplier for your business can help reduce stock levels. Your supplier could hold onto stock for you or even ship it directly to customers on your behalf. Suppliers who offer agreeable payment terms, such as 30 days credit (or more in some circumstances) means you won’t have to keep cash flow tied up in your stock.

However, if the worst should happen and your customer fails to pay, then you need to have a clear debt recovery process in place, which you can read about here.

  1. it has stopped me from investing in new equipment?

Online shopping is often blamed for putting a huge strain on bricks-and-mortar businesses. Consumer demand for innovative shopping experiences is increasing – something the online world has catered for. Whether it’s through next day delivery or simply saving our payment details, consumers want experiences rather than just products.

Despite this, 85% of consumers still prefer to shop in physical stores rather than online, so it’s clear that our high street isnt dead, it just needs re-inventing.

However, as so many retailers are faced with aged debt, their chances of remaining innovative are slim. According to the Liberis survey, 23% of retailers are having to take out loans to bridge cash flow gaps caused by unpaid invoices. Without the cash flow to invest, retailers are often not able to realise their ideas.

Let’s take a look at how Zara is transforming the way we shop in-store.

Zara, the popular Spanish fashion retailer, is currently making waves in the industry after becoming the first to introduce augmented reality (AR) into its stores as part of efforts to engage with millennials and increase footfall.

The technology brings traditional shop mannequins and window displays to life through a virtual fashion show, featuring its latest looks on international models all through an app on its customers? mobile devices. The app also features options for customers to click and buy clothes online in a bid to connect offline and online shopping.

In a press release, Zara explained The app features a tool for sharing the experience on social media, encouraging users to take and submit photos of the holograms, establishing a virtual connection that appears remarkably real. The experience ran for a two-week trial period in April 2018, though the plan is to roll it out fully.

  1. less cash flow to invest in my business? future?

Competition in the retail industry is fierce, making the need to invest and remain innovative crucial. However, 43, 000 retailers last year were in financial distress, so it’s clear cash flow is limited.

The Liberis survey supported this, with 30% of retail respondents saying they are currently owed over 20, 000.

it’s not just small retailers who are facing a financial crisis from their debtors. Several multi-national suppliers have been left with mounting debts after their customers have fallen into administration – most recently Toys R? Us, the corporate giant of children’s toys.

With all its 105 UK stores now liquidated and their 735 US stores following the same fate, Toys R? Us have left its suppliers £23.7m out of pocket, with Mattel (manufacturers of Barbie) owed an excess of $135m (£101m) more than any other.

Based on Toys R? Us? website, its suppliers, including Mattel, are unlikely to receive payment for their outstanding invoices anytime soon:

any balances outstanding as at 28 February 2018, the date of appointment of the Administrators, will rank as an unsecured claim against the Company. Please be aware that on the basis of information available, you are unlikely to receive any payment in relation to your claim.

In an interview with reuters UK, Isaac Larian, chief executive of Bratz dolls maker MGA Entertainment, said, We have a $14-$15m (£10-£11m) payment due that hasn’t been paid. If I was a guessing man, I wouldnt think Id get all of it back.

For retailers who need to gain a competitive advantage to stay profitable in a crowded market, the chances of investing in their business? future are looking slim, simply because their debtors are failing to pay up.

Fortunately, not all is lost. There are ways businesses can plug cash flow issues. For example, seeking short-term finance can fill gaps in cash flow.

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Traditional retail thinking isnt working: it’s time to change now or shut up shop