The toy industry is highly resistant to economic downturns. At least, that is what “they” (which includes you and me) have always said. And we have always been right.

The common wisdom has been that, during tough economic times, people need to be diverted from their problems; they want to be entertained. Nothing provides a family with as much entertainment for the least amount of money than a toy or game and parents will put off their own happiness in favor of their children. Accordingly, parents will put toy purchases high on their shopping lists, right after the basic necessities.

So, in today's turbulent economic times, we in Toy Nation should have little to worry about, right? Well, maybe not this time.

Combine the storm clouds of last year's safety recalls with the new, more stringent regulations that followed; the resulting slowdowns in moving goods out of China; the increases in petroleum prices; high inflation in China and Vietnam; the current economic climate; and the uncertainties in the banking system and you have a financial “perfect storm” for the toy industry.

These are the economic weather conditions we are facing—but are we seeing any bolts of lightning in terms of negative news stories about toy manufacturers and retailers? Well, yes, there have been a few. Sababa Toys filed Chapter 7 bankruptcy and was liquidating its assets, while Boscov's Department Stores filed Chapter 11 bankruptcy in August. And it's not just the smaller players. Mega Brands' stock has taken a battering due to last year's product recalls. A much-needed infusion of cash and an insurance settlement have helped settle things down, but it has been a fight.

We know about such things because all of them were on the public record. More worrying, however, is the information that does not get on the news. How are all those privately held companies doing financially that make up the bulk of Toy Nation?

I speak to lots of people every day around the toy industry, and I am hearing a steady drip of stories involving toy manufacturers paying late. Is this a trend or just a series of unrelated anecdotes?

In order to find out, I decided to check with those who have been historically most vulnerable to payment slowdowns: independent sales representatives. I contacted 15 sales groups and asked them to pick one of two choices: I have had an increase in the number of companies paying late; or, I have not had an increase in the number of companies paying late.

Ten sales groups out of the 15 that responded (66 percent) said that they were experiencing an increase in late payments. I don't want to overstate the significance of this limited sample, but, when put in context with the anecdotal information that I and others are hearing, it does seem to reinforce the notion that there's growth in late payments.

Slow payments typically mean a poor cash flow. But what's their cause? Here are a few suggestions:

• Retailers are anxious about consumer spending. They are reluctant to take possession of large amounts of merchandise when they don't know what kind of a year this will be. Accordingly, they are pushing manufacturers to pick up a bigger share of the costs, the debt and the risks. It means manufacturers are being asked to own inventory longer, to warehouse it domestically and to give longer payment terms. Companies whose business models are based upon direct sales from China and a quick return on investment are just not financed for this type of business model.
• Banks are tightening their financing and venture capitalists don't see the gains in line with the risks. This means that toy companies that now need more capital to operate have little or nowhere to go.
• Dramatic increases in costs for Chinese labor and material expenditures plus equally dramatic increases in freight prices are having a real impact on costs of business. Those toy companies that did not pass along these price increases are starting to feel the pain.

This is not just a problem for manufacturers. It is a problem for everyone in Toy Nation. We need healthy manufacturers so that inventors have a place to take their inventions, designers have products to design and retailers have products to buy for their stores.

Here are a few ideas of what we can do in the short term, and a few for what we can do longer term:

• It sounds simplistic, but retailers need to pay their bills on time. I fully appreciate that they are under stress, too, but if retailers have negotiated longer terms, they need to honor them. Manufacturers are straining and a retailer's failure to pay on time could mean the loss of a valuable source of current and future products.
• Toy industry associations in all countries can help. They can assist themselves and their members by working with banks and venture capitalists to set up a means for cash strapped companies with good products and proven business models to find the finances to maintain their liquidity.
• Toy manufacturers can help themselves by just saying no. If the only way that they can successfully do business and stay solvent is to stick with direct import sales, then they need to stick to their guns. If their costs are going up they need to pass them along. If that justifiable price increase is unpalatable to some of their customers they need to take it anyway. They may lose some revenue and even some important accounts, but it could mean the difference in being around to fight another day.
• Toy manufacturers need to pay their reps on time. Failure to do so can mean that reps are not selling aggressively when a manufacturer most needs them to be. Also, buyers know how to read reps and if they see concern about a manufacturer's solvency in the eyes of the rep, they may not buy that company's line.
• For the long haul, toy manufacturers need to step back and reappraise their business models. China is going to remain a question mark for a while, as are fuel rates and the financial system. Companies need to adjust their business models to the reality of a marketplace that is uncertain and retailers who are unwilling to gamble one way or the other.

Ultimately, most of us are going to come through this year's economic uncertainty just fine. I just want as many of us to make it through as possible. That means we don't just need to get smarter and tougher on the daily flow of dollars and cents; we need to take care of each other in order to ensure those dollars keep flowing to everyone involved in the sales chain.