Rathwood collapse Ireland: a profitable firm undone.
The Rathwood collapse Ireland case began when its main supplier, Mercer, went into administration. Rathwood then used customer deposits to pay creditors, which led to complaints and chargebacks. A retailer profitable for thirty years ended with debts close to twenty million euros.
One supplier, seventy per cent of stock.
Rathwood was a home and garden retailer on the Carlow and Wicklow border, run by James Keogh. It bought roughly seventy per cent of its stock from Mercer, a Northern Irish supplier. Also, Mercer had extended it decent credit terms for a very long time. So Rathwood ran the same machine as Blanquident, at a larger scale.
When a supplier goes into administration.
When a supplier goes into administration, the administrator can demand immediate repayment. Mercer's administrator demanded the three million euros Rathwood owed. As a result, seventy per cent of supply vanished in a week. On that very same morning, the three million euro bill landed.
What the Rathwood collapse Ireland teaches about deposits.
Rathwood began using customer deposits to satisfy arrears owed to trade creditors. Up to two and a half million euros came from as many as four thousand waiting customers. Then customers complained and started chargebacks, so card processors restricted Rathwood's credit facilities.
This is a profitable company cash flow collapse in its clearest form. The engine only stays upright while next month's sales beat last month's bills. In short, the Rathwood collapse Ireland story shows that engine running backwards at full speed.
Learn from the Rathwood collapse Ireland tonight.
Write down what share of your stock comes from your largest single supplier.
Then list any customer deposits you hold, and mark them as money owed, not revenue.
From the book.
The engine is the same in both companies. Collect early, pay late, spend the gap. It only stays upright while next month's sales are bigger than last month's bills, and the moment that stops being true the whole thing runs backwards at precisely the speed it ran forwards. I was never tested. Rathwood was, by something that had nothing to do with its own selling, and it didn't survive the test.
I Want to Start a Business but I Don't Have Money, chapter 6: The float: how to get paid before you pay
Questions about Rathwood collapse Ireland.
What caused the Rathwood collapse Ireland?
Mercer, which supplied about seventy per cent of its stock, went into administration and demanded three million euros. Rathwood then spent customer deposits on creditors.
How did chargebacks make it worse?
Customers went to their banks to reverse payments. As a result, card processors restricted Rathwood's credit facilities, and it could not get back out.
Why did Blanquident survive when Rathwood did not?
The author says he was simply never tested. Rathwood was tested by something unrelated to its own selling, and it did not survive.
Read the whole chapter.
This lesson covers one section of chapter 6, “The float: how to get paid before you pay”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 Supplier payment terms float: 37 days of free cash.
- 02 Cash conversion cycle formula: three hands on a clock.
- 03 Negative cash cycle small business: the Blanquident way.
- 04 Rathwood collapse Ireland: a profitable firm undone.
- 05 Can small business get net 90 terms: the honest answer.
- 06 Calculate cash conversion cycle: your three numbers.
- 07 Risks of spending customer deposits: six float traps.