The human cost of business debts: the shaky future of major healthcare providers and those who are most likely to suffer.

Speculation over the financial health of care home giants Four Seasons Healthcare has spiralled in recent months. From reports of closures back in December to a price hike in residential fees this summer, the future of the company looks bleak.

The cost to the company is seemingly massive, but what many may miss is the knock on effects for other parties connected with the business. What is going to happen to them should Four Seasons continue to remain indebted?

Knock on effects

Four Seasons face a £540 million debt pile, with over £60 million in reported losses so far this year. The crisis has sparked a restructure to mitigate losses where possible. With a court battle over a supposed legal document error made last year raging however, it is going to be difficult to turn the debts around.

During the restructure, a number of stakeholders could suffer due to the outstanding debts owed by Four Seasons. At the heart of the issue, the residents in care.

Residents at care homes pay to live there at a premium. In the last year Four Seasons has (as part of the restructure) increased the weekly cost for that care by 7%, making a marked difference for those already paying a substantial weekly fee.

This could see potential new residents priced out, unable to afford the care or existing residents unable to remain with four Seasons. While the company claims the increase was to cover rising overheads, it has come at a very unstable time, leaving questions about the true intention of the rise.

Forced price rises could spell problems for both Four Seasons and residents. If residents leave or can’t afford to join, short term gain can become a long term cash flow issue. With liquidity of a business an essential factor, Four Seasons may suffer over time. With such a large proportion of debt owed, ideally Four Seasons needs a long term strategy to survive and repay.

Impact on businesses

Another impact unpaid debts are likely to have will be on third party companies. As is common, many companies enter into partnerships with larger businesses to provide tertiary service.

For Four Seasons this could include a number of services from laundry to temp work suppliers to maintenance and other professional services.

Late payments to smaller partner companies can (and have) caused problems for those businesses, creating a trickledown effect. While losses for larger companies are a hindrance, they can be managed much easier than a small business owed a number of thousand.

The £540 million will be owed in debts from a number of unpaid contracts. Some of those contracts are likely to be in the thousands to tens of thousands to numerous SMEs.

For many SMEs, a large customer failing to pay will affect cash flow. If they themselves can't pay their own debts, they too fall into a similar position as Four Seasons.

In the long term, should the debt problems continue, it would not be surprising to see a number of associated SMEs also face financial difficulty and even closure because of Four Seasons.

The bigger picture

When a large company faces debt problems, those connected suffer. With an industry like healthcare, requiring particular dedication to its clientele, questions should be asked about how management has allowed the debt to spiral to its current position.

Many elderly individuals and staff at partner firms could face a difficult future if the restructure isn't successful. Companies like AYOM are here to help those owed payment receive their money before it is too late.

If you'd like to discuss a debt owed by a partner business you have invoiced, call the AYOM team on 0800 130 3357 or visit our enquiries page here. When a company allows debt to spiral it affects a number of connected businesses. Don’t let your own business be caught out because of other businesses failings.

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