Financial Fallout Affects Industry Too

This week we’ve seen more banks in trouble with Washington Mutual being seized by the FDIC, then sold to JPMorgan Chase and now Wachovia are next in line to be sold to the highest bidder. Although Washington is concentrating on bailing out the Wall Street to help the average American, industry too is hurting due to financial issues that we read about every day.

I was therefore not surprised by the results of a recent survey of large public companies, which highlighted that the number of days it takes companies to collect money owed to them rose to an average of 41 in 2007, up from 39.7 in 2006. This may not seem much but normally this index never rises or falls more than 0.5 days. This shows that firms are holding on to their money as long as they possibly can due to banks being unable or unwilling to offer credit.

Evidence of financial institutions unwillingness to help out companies was obvious in April when Bank of America declined to renew a $1 billion letter of credit for the retailing company Sears. Their response was to agree to amend the letter of credit for $5 million. $1 billion to $5 million, clear evidence that companies who rely on credit are in for a rough ride as we approach 2009.