Credit where it's due: firm revamped payment terms to cope with squeeze

By Laura Noonan

Thursday October 01 2009

WHEN Seamus Redmond made sweeping changes to his credit terms, the driver was sheer necessity. With €200,000 in bad debts courtesy of the construction collapse, the engineer knew his seven-man flooring company, Renobuild, couldn't withstand many more defaulting customers even though new business is flourishing.

"I've never seen anything to stop as sudden, abrupt, and severe as cash flow," he recalls with a near-shudder.

"We were being paid in 30 days, then it was turning into 90, then people stopped answering the phone. I was putting my own savings into the company to keep the place going."

Inspired by the practices of one of his own suppliers, Mr Redmond changed his standard credit terms from 30 days to a 50pc payment upfront plus a credit card with room to take the rest, or a letter of guarantee from a bank.

Credit insurance, something Mr Redmond admits he hadn't known about before the downturn, was also explored; but he found that door had already closed, leaving Renobuild to plough on alone.

Cutting off future bad debts at the source was only half the battle -- Mr Redmond still faced the challenge of his own creditors who'd gone unpaid when Renobuild's cash-flow dried up.

Believing himself to be "financially a bit of an idiot", he employed local Gorey firm Horizon Financial to run the rule over his company's books.

Restructure

"The first thing they did was tell me I wasn't alone, which was some comfort," he says.

"Then we restructured the whole thing financially and decided to ask everyone I had loans with for a six-month moratorium to free up working capital."

The changes to Renobuild's credit terms were introduced swiftly, but not painlessly. Redmond's says a lot of potential customers have "not come back" when they found they'd have to pay the 50pc upfront. He cites another example where Renobuild invested two days in preparing stock for a customer who refused to stump up the 50pc on delivery.

The stock was all bagged up and ready to go, but Mr Redmond watched the customer walk away. He says: "If he hadn't got the money now, he probably wouldn't have it in 30 days either".

Pain or not, Mr Redmond has ruled out rowing back. "We can't. This is a time of unprecedented financial strife everywhere," he says. "We've a multi-million euro construction company that owes us €1,500 and they haven't got the cash. That's how bad it's gone."

Securing the payment holiday from his banks has been a slower burner. He hoped to have the deal in place by June, but delays and paperwork have pushed the timeframe out, though the lenders have agreed in principle.

"I hate owing money to people, suppliers," says Mr Redmond. "I've gone to them and told them I haven't gotten paid on work and they've been fine, but I still hate it."

Renobuild's recession challenges have been stark, but he knows they are nothing compared to what the business would have faced if it hadn't undergone a major overhaul three years ago.

At that stage, the bulk of Renobuild's work involved laying resin for commercial clients like hotels, car showrooms and factories.

The company needed about three jobs a fortnight to keep ticking over and "the enquiries were getting less and less".

Taking heed of the warnings of some commentators, Mr Redmond decided to specialise in polished concrete -- a business line that appeals to both commercial and residential clients.

Getting the new service up and running demanded an investment of about €250,000 for new machinery and an upgraded premises.

"We had some money ourselves and I raised the rest by remortgaging my house," says Mr Redmond. "It was a a hard decision."

Three years on, polished concrete now accounts for about 90pc of Renobuild's turnover, with residential making up 90pc of the polished concrete work.

Renobuild has done everything from 1,000 square metre industrial jobs to 16 square metre cottages, and the orders continue to flood in.

"We've done more quotes this year than ever before," says Mr Redmond.

"Our average would be 35 to 40 quotes a month. We did almost 60 in July and 45 in August. I attribute that to hard work and a damn good website."

The growth in enquiries is so high that Mr Redmond has had to outsource some of Renobuild's sales work, though he's ruled out hiring a salesperson after being "badly burned" twice before.

The rise in quotes isn't going to Mr Redmond's head. He says turnover is still likely to be down this year, while the outlook for his company hinges on keeping "a good handle" on costs.

"This whole thing has changed my spending habits dramatically," he says. "We used to use a phenomenal amount of cotton safety gloves. Guys could go through 10 pairs a day, none of them worn out. I just stopped that.

"For some of our work there's brushes and rollers we only use once, instead of an €18 roller, now we use one for €6 or €7.

"It's all waste we didn't notice."

- Laura Noonan

Irish Independent