Vultures and distressed business

As the economy re-starts amid the extended quarantine, micro, small and medium sized enterprises (MSMEs) struggle to stay afloat. This is especially true for the wholesale and retail sector which comprise 57.9 percent of all MSMEs.

Business conditions have never been more challenging for these folks. On one hand, the safety nets of the Bayanihan Act have expired and MSMEs must now meet their rental obligations and bank amortizations without further deferment. On the other hand, the extension of the ECQ/GCQ prevents people from going out and consuming goods and services. The toxic combination of low demand and mounting obligations is depleting cash reserves among most MSMEs.

There are 106,175 small enterprises, 4,895 medium enterprises and a whopping 887,272 micro business establishments. Of this number, experts estimate that at least 60 percent will not survive should the quarantine extend beyond July. This will destroy the very backbone of the economy.

The challenging conditions has brought out the best and worst in the Filipino. While some have extended support for our besieged entrepreneurs, many companies (and individuals) are taking advantage of the situation to jockey for more discounts and/or avoid paying past due accounts. These people are akin to vultures who devour the spoils of businesses in distress. Let me cite some examples.

A husband and wife team started a distribution business some 15 years ago. In the early days, they imported generic sanitary products which they sold in small groceries. Over time, their business grew such that they now have their own brand and an entire line of products that are sold in supermarkets, drug stores and convenience store chains. For 15 years, the entrepreneurial couple lived frugally -- never taking dividends and instead plowing everything they earned back into their business.

They were doing good – until the ECQ. Its largest customers, a retail giant, refused to pay for their past orders claiming that the quarantine forced them to close their accounting department. They advised the couple that they can only process payments after the quarantine is lifted. Meanwhile, the retail giant’s stores remained open for business, generating hefty revenues.

Worse, this giant threatened to de-list the company from its roster of suppliers if it stopped delivering goods during the ECQ. Not only would the couple lose its largest client, their pending collections would also be made the last priority.

The couple had no choice but to continue servicing the retail chain. But having to supply the chain with goods while not being able to collect put a financial strain on them. The couple’s working capital was drained and they had no option but to borrow from informal lenders at high-interest rates just to survive.

Last month, the company was able to collect from the retail giant but only its receivables from February. They were advised that they could expect to collect their receivables for March this month. In one fell swoop, the retail giant extracted an extra 60-day credit from the struggling couple. It was a malicious ploy to the detriment of this struggling business.

Meanwhile, a colleague of mine is a supplier of imported food products to restaurants. He too is facing challenging times since orders are now few and far between. Last month, he discarded millions worth of inventories which have already expired due to low turnover. Stocks approaching their “best before” dates were also sold at a loss. What hurts is that he must still pay his foreign suppliers for them. His losses are running up to the millions and like everybody else, his cash is running out.

My colleague only started collecting past due accounts last June so as not to put pressure on his clients, who are also suffering. One of his customers, a “popular” restauranteur, sent him a vile message accusing him of being unsupportive and inconsiderate. She proclaimed her disgust whilst cancelling all her orders. It is unclear if she still intends to pay for her past due accounts.

Another restaurant operator had the gall to ask my colleague for a seven-month deferment of payment plus a ten percent discount on all past and future orders. Mind you, this restaurant operator has been open since May and doing well.

Food retailers have their own horror stories to tell. Notwithstanding difficult times, senior citizens demand not only their own discount but insist that all the members of their party be given the same privilege. By law, only the elderly are eligible for discounts. Some families who order food delivery present one senior citizen card and demand that the whole bill be discounted. Others have no senior citizens card but demand that the discount be given based on their senior-looking face.

There are customers who make a scene in restaurants and post bad reviews on social media when there are items unavailable on the menu or when the service is “shabby”. They fail to consider that most restaurants can’t afford to carry the entire inventory of their menu due to low traffic, neither can they afford a full labor force.

Other customers use restaurants as their “offices” holding meetings that last for hours while ordering one cup of coffee. They are mindless to the fact that each chair is precious since restaurants can only operate at 30 percent.

These horror stories occur everyday. We forget – this is not the time to take advantage of our struggling entrepreneurs – rather, it is the time to uplift them. Our economy will recover faster if we support each other. Here’s how we can be part of the solution:

Patronize Philippine-made products and services. And whenever possible, give your business to MSMEs. Know that their clocks are ticking and your business will extend their lives.

Be patient when the services are not up to par. Most companies are working with limited resources and skeletal staff.

Be nice to the frontliners of establishments. Each of them have their own story of hardship. Otherwise, they would not be working in this difficult time.

Discounts erode the profitability of businesses. If you can afford it, forego with your discount privilege. Consider it your small contribution to the economy.

For merchants, honor your supplier payables as much as you can. Recognize that your suppliers have obligations to meet too. If cash is short and you are unable to meet your obligations in full, engage in dialogue for mutually beneficial terms. Transparency between clients and suppliers is key in uncertain times.

Let’s help our MSMEs survive this crisis. Recognize that if they break, so will the entire economy.