Post-Paperlinx advice for cash-strapped print companies

Jo Francis
Monday, July 13, 2015

It’s a situation that is polarising industry opinion. Three months on from the administration of most of Paperlinx UK, we’re now at the stage where print companies that had 90 days’ credit with the merchant are being expected to cough up on their outstanding debts.

Others, who enjoyed even more generous terms of 120 days, are facing the same situation, come the end of the month. 

At the same time, the credit limits and payment terms with alternative suppliers – if available – are unlikely to be as generous as those previously on offer from Paperlinx.

It’s a situation that has left some print firms with a serious dent in their working capital position. And as everyone in business knows, cash is the lifeblood of every company. 

“We’re talking to a number of people that have complained about short supply but are also worried about price rises,” notes David Bunker, business development director at Close Brothers Asset Finance. 

“Cashflows of printers are bound to be hit if they were getting trade credit from Paperlinx companies, but are now having to start again with other suppliers. These other suppliers may have to place credit limit ceilings for these customers due to increased exposure. If this means that some supply then has to be on less credit or proforma, then that will spell bad news.”

For some, the resulting run on cash has already proved fatal, as the example of SME digital firm Digital Print Zone shows. 

There is little sympathy from some quarters for companies that have found themselves in a similarly cash-strapped position, post-Paperlinx. 

“If you don’t have enough capital to buy stock on 30- or 60-day terms you are an insolvent printer, in my opinion,” says one commenter on printweek.com’s discussion board. 

However, a more sympathetic hearing can be found elsewhere in the industry. “I think that sort of view is a bit harsh,” says Ian Carrotte, chief executive at credit specialist ICSM. “We all operate using cashflow, it is part of business reality. Not everyone had the nous to foresee what happened with Paperlinx, some people carried on obliviously. I don’t care who you are, if you have that amount of money suddenly taken out of a business, it’s difficult.”

A case in point is the example of a family-owned print firm cited by Paul Eversfield, print specialist at Five Arrows Business Finance.

“This is a typical family-owned jobbing printer and they’ve been around for ages. They had paper supply and credit from four different merchants. Unfortunately three of them were Paperlinx companies,” he explains.

“Their other merchant has increased their limit, but it doesn’t cover what they had previously with the other three companies.”

The printer is coping by asking some customers to buy their own paper, and by the directors purchasing paper on credit cards. It’s also on direct debit terms with its remaining merchant due to increased exposure. 

“This is a classic credit crunch. There’s no reason these people should have lost credibility, it’s a perfectly good business. But they have as a consequence of having three out of four paper suppliers in one basket.”

While this particular print company has been unfortunate, PrintWeek has learned that some printers are opting for a potentially high-risk approach to their outstanding Paperlinx debt. 

“I was talking to a printer the other day who said he wasn’t worried, he didn’t have a cashflow problem because he wasn’t going to pay his Paperlinx bill,” says one finance expert. 

This sort of approach is likely to be a one-way ticket to much, much bigger problems, especially for anyone hoping to set up new lines of credit with alternative suppliers. 

“They should be worrying more. There is no flexibility at all, the administrators will be saying ‘pay up now, or else’,” notes one paper supplier. “Collecting that money is Deloitte’s biggest project now.”

“Ostrich syndrome,” adds Eversfield, “Is a short route to mega-problems. They will have judgements against their company before they know where they are.”

So what are the options for printing companies who need an injection of working capital because the country’s once-biggest paper merchant is no more?

The good news is, there are a variety of potential solutions. Printers that have unencumbered assets may be able to release some of that value into the business via asset-based lending. 

“Switching from overdraft funding with a high-street bank to properly tailored facilities with an asset-based lender may mean that ‘free’ assets not taken into account by the bank can be used as collateral to increase overall funding and improve flexibility for expanding businesses,” says Nick Hood, business risk advisor at Opus Business Services.

Specialist industry finance providers, such as Close Brothers and Five Arrows, have been working with a number of printers on this basis. It may even be possible to access Regional Growth Fund support for fresh investment (see Opinion, right) that could help. 

ICSM’s Carrotte also points out that print companies potentially have uncollected funds sitting in their own ledgers.

“I don’t want to be down on the industry but it’s a fact printers are often dreadful at credit management,” he says. “If it’s handled properly you can get that cash in and enhance relationships with customers at the same time.”

Being open and honest with suppliers is cited as one of the simplest and most effective ways to build confidence in a company’s ability to pay – that, and paying those bills on the nail when they do fall due. 

“Business is about managed risk at the end of the day,” notes Paul Holohan, chief executive at Richmond Capital Partners. “Maybe you need to dig into your own pocket and make a director’s loan to the business. It shows your faith in the company because you are putting your own money on the line.

“Communicate this to build confidence. Explain you are putting more working capital in and you will pay your bills on time. And then make sure you do.”


OPINION

Methods to cope with supply issues and boost cashflow

david-bunker-closeDavid Bunker, Business development director, Close Brothers Asset Finance 

Most of the advice to deal with the situation will sound obvious. Firstly, taking on large jobs where bigger paper orders are required may be a challenge if there are issues with paper supply. Secondly, if new suppliers are needed, then presenting one’s business in the best possible light is crucial. If confidence can be built quickly with new suppliers then that may help ease cashflow if reasonable credit terms are provided. 

It’s probably worth presenting forecasts and a business overview to suppliers as trade credit is a function of what the paper company’s perception is of your business and your credit score. It’s important to showcase what the business is doing now and what’s in the pipeline.

Some of our customers have used refinance to raise working capital, not only to plug the potential cashflow hole, but to use for building a stock of paper. One option is to raise cash from the value of machinery that’s free or partly free of finance. The advantage of this type of borrowing is that it’s likely to be easier to arrange than a comparable overdraft and not repayable on demand, so you’re left to quietly get on with running the business.

Another option is to free up working capital by taking the opportunity to replace older equipment. With the Regional Growth Fund still available from Close Brothers we can help customers apply for a grant to help with raising the deposit for a replacement machine where jobs are being safeguarded and/or created. If the business can demonstrate it can afford repayments and is successful in its application then this would allow some working capital to be injected as well as provide a suitable deposit for the new machinery. 

The print industry is resilient and business in the sector have been through considerable challenges over the years. This will pass, but for now we’ll monitor what’s happening and be there to help.


INDUSTRY REACTION

How are you dealing with the post-Paperlinx landscape?

phil-alexander-gf-smithPhil Alexander, joint managing director, GF Smith

“We don’t use credit insurance so we make our own decisions and we do it via a dialogue with the customer, and we try to come up with a solution. Some printers will have to pay upfront until they establish a trading record. Unfortunately sometimes we can’t offer credit, but even if we decline a company we can still ‘inter-merchant’ them if needed, so they can access our products via another merchant.”

nick-hood-opusNick Hood, business risk advisor, Opus Business Services

“The impact for suppliers lower down the industry food chain was vividly illustrated by the almost immediate demise of Tullis Russell, blown away by the bad debt and future revenue flow issues caused by the Paperlinx collapse. There is a strong possibility that the incidence of print industry failures will spike post-Paperlinx. The immediate pressure points will be: rent payments due on the June quarter day (25 June), and VAT payments for Q2 2015 due at the end of July.”

dave-jones-premierDave Jones, group marketing director, Premier Paper Group

“We have been able to give the majority of new customers the credit limits they have asked for. In particular we have found smaller companies very willing to sign up to direct debit. This helps us to agree credit lines and ensures we can offer the best possible limit from day one. A more challenging aspect has been with medium-sized printers who have looked to us to increase existing credit limits. This has resulted in a lot of detailed work in order for us to agree new limits with our insurers.”

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