Cancellation of a Major Order Leads to Cash Flow Problems

Challenge – Cancelation of a Major Order Leads to Cash Flow Problems

Solution– A client had been working on a major project for over a year when it was determined that work could not continue unless the customer agreed to additional charges. When the customer declined, our client had to cease work on the project. Tremendous expenses had been incurred and, while some payment had been received, it was not enough to cover the expenses and disruption to the flow of business caused by repeated delays and unfunded rework on this project.

We assisted the client to identify the magnitude of the problem and establish a plan to move forward. We drafted a letter, explaining the situation to all of the key vendors involved with the project. We set aside the amounts due to the vendors for this program and it was paid out over a sixteen month period in equal installments. While not the normal commercial terms, all the vendors appreciated the information and being treated equally with other vendors. All went along with the program, allowing the company the time to earn sufficient profits and cash flow to meet these obligations. Not a single vendor was lost to the company in this process, nor did any vendor demand to be paid differently than the plan.

We have found repeatedly that objective assessment, development of a realistic plan, and active communication of the plan to all concerned parties is the basis of maintaining positive relations during a troubled time period.