Monday, 03 August 2015 12:23

Pirelli prompt payment policy leaves Lotus lagging

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Formula 1 tyre supplier Pirelli took a hard line in Hungary by invoking a prompt payment policy that left Lotus with no tyres as the first practice session approached on the Friday.

Payments are due on a quarterly basis and, according to reports in the Telegraph and other national newspapers, Lotus owed about £350,000 for three months' worth of wheels.

However, Pirelli did not receive the money in time, due to what Lotus later termed a 'banking technicality'.

Whether that is simply a mistyped account number or delay in the system, or a euphemism for having no money in their account, we may never know.

But whatever the cause, the effect was that Pirelli embargoed the tyres Lotus had ordered for the weekend in Hungary, until the payment was released.

Cause and Effect

Spectators might not have noticed anything wrong - Lotus joined in the first practice session not long after it began, having managed to clear their payment to Pirelli with an hour to spare - but the team did lose some track time due to the delay of warming their just-delivered tyres up to full temperature.

Obviously the story made the papers though, so the reputational damage is done, with the Telegraph in particular claiming money is "incredibly tight" following Lotus dodging a winding-up petition earlier in July.

Caught in the middle of all of this is Jolyon Palmer, an Englishman who is reportedly paying for the right to drive the current Lotus car during practice sessions - and who only managed to clock up four laps in the morning session.

Put all of these together, and the possibly strained relationship between Lotus and Pirelli in the future, and the team definitely didn't come away scot-free from the whole debacle.

Cash Flow in the Pits

This isn't the first report of a Formula 1 team's cash flow going from the fast lane to the pits - in October 2014, Caterham faced a visit from bailiffs at their Leafield base, ahead of the Japanese Grand Prix.

Items seized again included tyres, along with steering wheels and even a complete test car from the 2013 season, although Caterham shrugged off the incident and continued to race as normal.

However, these kinds of headlines highlight how big brand names in one of the world's richest sports are not immune to cash flow hiccups now and again.

The recent rule changes may be partly to blame, as designing and building the modern hybrid engines now used in the sport is apparently much more expensive, but this only raises the risk to creditors and suppliers like Pirelli.

Whatever industry you're in, remember that the outward face of a company is always likely to present its best-case scenario - and on the inside, things might not be looking so rosy.

Background credit checks that delve into the official accounts of these firms are the only objective way to reassure yourself that they will pay in full (and hopefully on time), without looking through the rose-tinted spectacles of their public relations team.

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Image "Pirelli P Zero | 26° Rally Proserpina 2011" from flickr user Kappadue Innovazione used under CC BY