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It's always blown my mind that companies like this will operate not having enough cash on hand to actually provide the services they've sold. Maybe that's why

It's always blown my mind that companies like this will operate not having enough cash on hand to actually provide the services they've sold. Maybe that's why they're in business and I'm not.

chadcmulligan 7y ago
I've been told many large companies only have a few months cash flow to keep them operating. I remember many years ago this fact was exploited by the unions when a dispute couldn't be resolved. They stopped collecting payments (pre internet) and the dispute was resolved quickly.
sksksk 7y ago
Well, they're not in business anymore
Blackstone4 7y ago
Working capital is the amount a company is due for services/goods (accounts receivable) minus what it owes for services/goods (accounts payable). The ideal situation for a company is that if it receives payment for it services in advance (i.e. a consumer paying for a holiday) and has to pay its suppliers (i.e. hotels) much later. This can result in a situation called negative working capital where a company has received more cash from customers than it has paid to-date. This is effectively interest free financing. Companies getting into financial difficulty will try to accelerate payment of monies they are owned and delay payment to supplies...as we see here.
droithomme 7y ago
> not having enough cash on hand to actually provide the services they've sold The article mentions that one of the issues here is that the credit card companies saw that collapse was imminent and certain and thus refused to release the funds charged by their customers to Cook, knowing that Cook would collapse, the customers wouldn't get their full holiday, would do a chargeback, but the bank wouldn't be able to get the funds back from Cook. > "The tour operator is understood to have made a number of proposals, including ... for credit card companies to release about £50m of cash they are holding as collateral against Thomas Cook bookings." So maybe they did have enough cash on hand in a way, but the banks weren't releasing it to them. Another intractable and perhaps the main problem was their massive debt service owed on their previous bailout. Kind of similar to Toys R Us and other companies that have had a bailout of one form or another that leads to massive debt and debt payments taken on and beyond the ability of the company's profits to pay off.
pjc50 7y ago
Well, reaching that point is the definition of insolvency. But having future commitments that you don't currently have the cash for is both normal and expected. The economy is held together by invoice credit. (Wait until the people who get upset about banks "creating money" realise how commercial credit works and discover "shadow banking"...)
- WarDores 7y ago
  Anyone interested in the "creating money" aspect of banks should definitely read a paper called "The Monetary Basis of Bank Supervision" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3421232 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3421232).

It's always blown my mind that companies like this will operate not having enough cash on hand to actually provide the services they've sold. Maybe that's why they're in business and I'm not.

chadcmulligan 7y ago

I've been told many large companies only have a few months cash flow to keep them operating. I remember many years ago this fact was exploited by the unions when a dispute couldn't be resolved. They stopped collecting payments (pre internet) and the dispute was resolved quickly.

sksksk 7y ago

Well, they're not in business anymore

Blackstone4 7y ago

Working capital is the amount a company is due for services/goods (accounts receivable) minus what it owes for services/goods (accounts payable). The ideal situation for a company is that if it receives payment for it services in advance (i.e. a consumer paying for a holiday) and has to pay its suppliers (i.e. hotels) much later. This can result in a situation called negative working capital where a company has received more cash from customers than it has paid to-date. This is effectively interest free financing. Companies getting into financial difficulty will try to accelerate payment of monies they are owned and delay payment to supplies...as we see here.

droithomme 7y ago

> not having enough cash on hand to actually provide the services they've sold The article mentions that one of the issues here is that the credit card companies saw that collapse was imminent and certain and thus refused to release the funds charged by their customers to Cook, knowing that Cook would collapse, the customers wouldn't get their full holiday, would do a chargeback, but the bank wouldn't be able to get the funds back from Cook. > "The tour operator is understood to have made a number of proposals, including ... for credit card companies to release about £50m of cash they are holding as collateral against Thomas Cook bookings." So maybe they did have enough cash on hand in a way, but the banks weren't releasing it to them. Another intractable and perhaps the main problem was their massive debt service owed on their previous bailout. Kind of similar to Toys R Us and other companies that have had a bailout of one form or another that leads to massive debt and debt payments taken on and beyond the ability of the company's profits to pay off.

pjc50 7y ago

Well, reaching that point is the definition of insolvency. But having future commitments that you don't currently have the cash for is both normal and expected. The economy is held together by invoice credit. (Wait until the people who get upset about banks "creating money" realise how commercial credit works and discover "shadow banking"...)

WarDores 7y ago
Anyone interested in the "creating money" aspect of banks should definitely read a paper called "The Monetary Basis of Bank Supervision" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3421232 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3421232).