All In It Together
The industry has to work collectively to ensure that failing companies do not sour the reputation of the sector. Mike Collins suggests a manifesto for change.
Following the recent liquidation of We Brand It (Buyking Limited), the furore continues as to how to protect the industry, its reputation and suppliers from suffering distributor write-off losses.
“Something must be done,” is a comment popular on industry forums and in conversation.
Ultimately though the harsh truth is that nothing is being done because everybody passes responsibility to somebody else, rather than take control themselves. However, control can be brought for the benefit of all.
Let’s look at the industry and determine who really does have the power.
Commonly following the demise of a distributor or a supplier, people wonder what the bpma is doing. The more pertinent question should be “What can the bpma do to stop this?”
Sadly, The Companies Act and, to some degree, the law allows debtor companies to enter insolvency, then magically rise phoenix-like from the ashes debt free with new, often very similar identities. How can the bpma or any other trade body be expected to change this if the Government will not do so?
The bpma can do one very important thing – ensure that live members act in accordance with the bpma Code of Conduct. Members who do not should be excluded without hesitation – as happened to We Brand It several years ago.
If the bpma polices its policies and ethics to try and weed out charlatans, these actions will act as a beacon to all.
Software related providers
Like the bpma, it is perceived that industry software providers can do little to help prevent the problem. I do not agree.
Distributor software providers are like any other business; they rely on sales and monthly fees. When a phoenix company resurrects itself, they too must make a stand and choose not to deal with them. When you burn your bridges, it’s time for consequences.
Software providers can play a part in ridding the industry of rogue distributors.
In my view, catalogue groups should be responsible for ensuring their own membership is policed, with an inbuilt duty of care that their distributor members pay suppliers in a timely fashion.
One key role of catalogue groups is bringing distributors together in return for favourable supplier discounts. Should then the catalogue groups not at least try to ensure that their members are responsible payers? It does not sit well if a catalogue group favours distributors without due regard for timely supplier payments.
There are a few steps that can be taken before a member’s company insolvency, but when something goes wrong is it not right to expect a catalogue group to exclude a distributor from their membership at the earliest opportunity? If a supplier is satisﬁ ed that a catalogue group endeavours to deal only with reputable distributors, polices them responsibly, with remedies to eradicate rogues, then that is all that can realistically be expected.
Financial support providers
In this category we cover credit reporting providers, debt recovery agencies and solicitors (including my own businesses, AccountAssyst and Direct Route).
Providers in this sector do their collective best to pre-warn and prevent sales driven suppliers and distributors alike from exposing themselves to avoidable write-offs. Additionally, they can salvage difﬁcult situations when a business ﬁnds itself exposed to a problem account. The virtues of implementing robust credit management processes are hard to overstate, as indeed are the inevitable consequences of failing to do so.
Whilst data is produced and provided in many formats, this information is useless unless acted upon. It is very much in the company’s interest to take action upon the information to mitigate exposure by balancing risk against reward.
The conclusion is that although ﬁnancial support providers can aid in some control elements, they cannot prevent or change situations that we all morally and ethically disagree with. The industry has to ﬁnd its own way to control and eliminate rogue distributors.
A major supplier dilemma exists when a phoenix company comes back on to the scene. Having suffered the initial write-off, they are offered the opportunity to partially recover losses by supplying the phoenix on pro-forma terms.
A sale is only a sale when it is paid for, but what about a sale that is actually being paid for before supply? Some suppliers hold their ground on principle, largely because they have the ﬁnancial strength and capacity to do so, but nevertheless it remains a tricky dilemma. Is a supplier ‘shooting themselves in the foot’ by not supplying on risk free pro forma terms?
The argument for this is that if you don’t, somebody else will. Pro-forma suppliers have nothing to lose and everything to gain, or do they? We know through experience that debtors are creatures of habit and having got away with debt once, they’ll be drawn to it again.
Without distributors the industry may not exist as it does today. Distributors are the consultants and sales force of many a supplier. We understand how they generate industry sales but they might also aid an industry clean up.
Distributors are potentially much more powerful in all of this than we might have at ﬁrst considered. Together they have the collective power to stop phoenix distributors.
My mind is drawn to a situation ﬂagged to me by a supplier some time ago. The supplier originally cautioned as to some of the merits of our product, the Register of Outstanding Invoices (ROSI). ROSI is available through the bpma Credit Management Service offering and provides early warning alerts on businesses that are not paying on time.
The situation in question was that one of the major industry software providers had tabled an idea that suppliers should start providing late payment data on tardy paying distributors to generate an industry report beneﬁcial to suppliers.
One reason the industry support product never took off was an unequivocal written objection from a single distributor which threatened to withdraw its orders from any supplier that signed up to the proposed service.
It is certainly debatable whether the actions of said sole distributor go against the ethics and ethos of the industry working together to protect each other, but it clearly illustrates that were there to be a communicative support tool available, this would provide the information that suppliers could utilise to weed out the distributor charlatans.
It has been said that the bpma, the catalogue groups, the software providers, the other support providers and even the suppliers collectively could do more to improve the total working environment. However, the general consensus is that several are unlikely, unable or even perhaps unwilling to do something about the rogues.
I acknowledge that there are a few outspoken suppliers that stand their ground and refuse to supply phoenix distributors but this may be because of their fortuitous trading position.
So ﬁnally back to our original question – how do we stop this happening again?
To be frank, it’s very simple. Imagine the scenario. A small, select group of reputable distributors get together and say to their suppliers “If you supply this particular phoenix company then we’re taking our business elsewhere”. What would happen?
An approach like this from just a few distributors would force the suppliers to choose between this group of reputable distributors or the pro-forma rogue of a failed reincarnated business.
It is a no brainer. Would any supplier choose to lose, say £100,000 business annually, in order to protect a ‘here today gone tomorrow’ company turnover of £10,000 per annum?
Yes, it is acknowledged that it is incumbent upon the distributors to ensure they act appropriately at all times and only use their power for the common good when ridding the industry of a rogue phoenix company or a charlatan director. (For examples feel free to contact the writer personally – we could write a book on rogues – see Distributor Failure Analysis of 2013!).
Does coming together to warn off danger damage the industry? Not one bit, after all it is human nature to protect what we care for. The end user still gets their goods, but from reputable distributors. The suppliers continue to receive their orders but with less risk. This attitude leads to fewer write offs, more proﬁts and in turn a more successful cycle of business for all.
However, ideas are no use without action. The true power to stop this happening again lies within. Now is the time to step forward and be a key component in securing your future.
Mike Collins is managing director of Account Assyst and Direct Route.